Top stocks for May

We asked our analysts to share their top stock picks for the coming month.

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We asked our writers to share their top stock picks for the month of May, and this is what they had to say:

Kevin Godbold: Soco International

One of the strongest oil production and exploration firms listed on the London stock market is mid-cap Soco International (LSE: SIA). The firm is cash rich, carries no debt, produces cash-generating oil from its assets in Vietnam, and has a record of returning cash to shareholders. City analysts expect ordinary and special dividends to total around 6p during 2016, a potential yield around 4% at today’s share price of 150p or so.

Whereas the lower oil price seems to limit the downside risk for investors, upside potential could arise if the oil price elevates leading to capital gains and rising dividend payouts. Soco also has potential to put its war chest of around $100 million cash to work buying distressed assets, which could add value.

Investors buying Soco shares during May could do well if targeting a 3-5 year investment horizon.

Kevin owns shares in Soco International


Rupert Hargreaves: ITV

Shares in ITV (LSE: ITV) have fallen by 15.5% this year as investors have become increasingly concerned about the state of the traditional advertising market. However, ITV is still well placed to profit in a hostile media market where advertising rates are under pressure. 

You see, ITV has built a vast content library, which can be sold to various other networks around the world. This library is one of ITV’s most prized assets and should continue to generate a steady income stream for the company going forward. 

City analysts expect the company’s earnings per share to grow by 9% this year and a further 7% for 2017. And if the company meets City forecasts for growth, TV’s pre-tax profit will have tripled in seven years. The shares currently trade at a forward P/E of 12.7 and are set to yield 3.6% for 2016. Special dividends are also on the cards. 

Rupert does not own shares in ITV.


Roland Head: Imperial Brands

The UK’s number two tobacco firm Imperial Brands (LSE: IMB) has been trading at a growing discount to its larger peer British American Tobacco since the start of April. Imperial now has a 2016 forecast P/E of 15, compared to 18 for BAT.

With Imperial due to provide a trading update early in May, I believe this discount could turn out to be a buying opportunity. Poor sales in Iraq and Syria have contributed to a more cautious outlook for Imperial, but this bad news is now in the price. Any improvement in trading could help the shares higher.

A second attraction is that Imperial offers a 2016 forecast yield of 4.2%. That’s usefully higher than the 3.9% yield on offer at BAT. Tobacco investors eager for income could give Imperial shares a boost, as long as May’s trading update doesn’t contain any further bad news.

Roland has no financial interest in any company mentioned.


Harvey Jones: Barclays

Last year saw yet another wave of troubles hit the banking sector in general, and Barclays (LSE: BARC) in particular. Its share price collapsed by as much as 40% in a year, as its toxic legacy, trouble in Europe and global economic fears scared investors away.

There are signs that Barclays is on the comeback trail. Its stock is up 15% in the last month, helped by could-have-been-worse Q1 results, which showed the bank continuing to crawl its way out of trouble.

Quarterly profits of £793m may have been down 25% year-on-year but were still far more encouraging than the £2.1bn loss Barclays posted in Q4 2015.

April’s share price surge should cheer optimists, but realists accept that Barclays has a long way to go. Trading at 10.53 times earnings, the price looks right, but only if you are be prepared to be patient. Earnings per share are expected to fall 5% this year, then jump 42% in 2017. The rewards, including a juicier dividend, should finally flow in 2018. Far-sighted investors will hitch a ride today.

Harvey Jones has no position in Barclays.


Bilaal Mohamed: International Consolidated Airlines

International Consolidated Airlines Group (LSE: IAG) is my ‘Top Stock for May’ with a compelling investment case to suit every type of investor.

The owner of British Airways and Iberia put in an excellent performance in 2015, and our friends in the City are expecting more of the same in the coming years. Analysts are talking about an impressive 50% rise in earnings this year, with a further 12% improvement pencilled in for 2017. Dividend payouts look pretty healthy, too, with yields of 4.0% and 4.7% earmarked for the next couple of years.

So the well-covered dividends should appeal to income investors, but what about the valuation? Well, IAG trades on 6.3 times forecast earnings for this year, falling to just 5.6 times for the year ending 31 December 2017. At current levels, IAG looks irresistible for bargain hunters, growth investors and income seekers alike. What more could you ask for! 

Bilaal does not own shares in International Consolidated Airlines


Alan Oscroft: Gulf Marine Services

Selling self-propelled, self-elevating support vessels to the offshore oil and gas business might not sound exciting, but it’s profitable. It helped Gulf Marine Services (LSE: GMS) to a net profit of $75m in 2015 — just 1% down on the previous year, which is a strong performance in these tough days for the oil industry.

Gulf Marine, while not providing as many new services as in fatter years, is still doing well from maintenance and existing contracts, and there’s an upturn in EPS forecast for 2017 which would put the 51p shares on a P/E of only around three!

There’s a fair bit of debt, which does throw some risk into the equation. But the company has plenty of headroom, and in a recovering oil market over the next few years there should be opportunities aplenty. The shares are down 60% over the past 12 months as investors shun anything risky in the sector, and that looks oversold to me.

Alan Oscroft has no position in any shares mentioned


Ian Pierce: Purplebricks

If there’s one industry in serious need of a shake-up, it’s the approximately £4bn estate agency market. While there are a handful of online-only companies seeking to cut out traditional estate agents, hybrid agency Purplebricks (LSE: PURP) is the one that catches my eye. This is because Purplebricks combines the low costs of online agents with its 165 ‘local property experts’.

These self-employed agents allow Purplebricks customers to have the best of both worlds: the low fixed fees of online providers as well as the know how of traditional agents. And Purplebricks fees are indeed low, coming in at an average of £1,028 per sale, far lower than the average £4,000 traditional agents charge.

 The company only went public last December and is still running a loss as it spends heavily on marketing. However, with 60% online market and growing, I believe Purplebricks is one to watch. 

Ian Pierce has no position in Purplebricks. 


Edward Sheldon: Whitbread

Whitbread is the UK’s largest hospitality company and owns both the largest coffee house in the UK – Costa Coffee – and the largest hotel chain – Premier Inn.

While Whitbread has had a strong record of growth over the last decade, the stock has fallen around 30% in the last year on concerns of slowing growth.

However, results last week revealed that revenues grew 12% in the last financial year, and the company stated that they would be raising the dividend by 10% – a signal of confidence from management. Whitbread has significant expansion plans for both Costa Coffee and Premier Inn and this could boost shareholder value going forward.

With a forecast price to earnings ratio of around 15.8, the current share price could offer an attractive entry point.

Edward Sheldon owns shares in Whitbread


Peter Stephens: National Grid

Looking ahead, the EU referendum may come into sharper focus among many investors. This could mean a ‘risk-off’ attitude prevails and defensive stocks such as National Grid (LSE: NG) may be among the top performers. That’s partly because of its robust business model and also due to it having a beta of just 0.6.

Aside from its defensive prospects, National Grid also offers a yield of 4.6% and bright dividend growth prospects, with a real-terms rise in income likely in the coming years. Trading on a P/E ratio of 15.5, it seems to offer fair value, too.

Peter Stephens owns shares in National Grid.


Dave Sullivan: AB Dynamics

One of the most difficult things to do as an investor is buy a company when the share price is either at or near an all-time high; however, that can mean missing out on substantial gains for patient investors.

One such stock that has been hitting new highs since October 2015 is a little-known sub-£100m market capped business based in Bradford on Avon called AB Dynamics (LSE: ABDP). In brief, the business is a UK-based technical engineering company engaged in the design, manufacture and supply to the global automotive industry of advanced testing and measurement products for vehicle suspension, brakes and steering both in the laboratory and on the test track.

Despite its size, the company deals with global players in the automotive industry meaning it punches well above its weight.

Additionally, management recently announced a new ‘Driver in Loop Simulator’ tie up with Williams Advanced Engineering opening further exciting opportunities over the next few years as the call for active safety systems on our vehicles increases, which leads me to believe that there is still plenty of scope for the shares to appreciate further from here.

Dave Sullivan owns shares in AB Dynamics.


Jack Tang: Ashtead

Ashtead Group (LSE: AHT) is my top stock pick for two reasons.

First, the equipment hire company has excellent growth momentum, which should lead to continued market-beating returns. Despite headwinds coming from a slowdown in oil & gas markets, the group’s recent third quarter results confirm the company is firmly on track to deliver another year of robust earnings growth. Group operating profits increased 20% to £427.4m in the first nine months of the 2015/6 financial year, thanks to strong demand from end markets and a continued focus on operational efficiency, which has been driving improving margins.

Second, the stock is a great value play. Ashtead trades at a forward P/E of just 11.1, based on analysts’ expectation that underlying EPS will grow 28% this year, to 80.0p. That’s significantly lower than the FTSE 100’s weighted average forward P/E of 15.3, and demonstrates just how cheap this fast growing stock is.

Jack has no position in Ashtead.


Royston Wild: Imperial Brands

Tobacco giant Imperial Brands (LSE: IMB) hasn’t enjoyed a particularly pleasant time of late, the firm’s share value shedding 5% of its value since the start of April.

While this number is far from shocking, I believe the market may be missing a trick here. Imperial Brands now deals on a very-attractive P/E rating of 14.9 times for the year to September 2016, thanks to predictions of a 12% earnings surge. Meanwhile, a predicted 155.4p per share payment for fiscal 2016 yields a smashing 4.4%.

And I believe Imperial Brands’ interims scheduled for Wednesday, May 4th could provide the catalyst for a fresh share price spurt.

The London firm saw volumes of revenues-driving ‘Growth Brands’ like Davidoff and West explode 7.3% during October-December, the firm announced in February. I would expect signs of further sales progression next week to boost appetite for Imperial Brands once again.

 Royston Wild has no position in this company.


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The Motley Fool UK has recommended Barclays. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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