Top stocks for February

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

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

Kevin Godbold: Savills

United Kingdom-based real estate services provider Savills (LSE: SVS) has enjoyed well-balanced growth of revenues, earnings and cash inflow over the past few years. An update in January revealed the firm experienced “a stronger than anticipated finish to the year“ in several of its businesses around the world during 2017. The operational progress reflects in a rising share price and in a dividend payment that has increased 220% over the last six years.

I reckon the trading momentum looks set to continue through February and beyond — yet at a share price around 1,010p, the valuation remains undemanding.

Kevin Godbold does not own shares in Savills.

Rupert Hargreaves: Royal Mail

After a rocky 2017, 2018 is already shaping up to be a good year for Royal Mail (LSE: RMG). In mid-January the company announced that, thanks to a strong performance over Christmas, revenue for the nine months to December 24 rose 2% overall. Parcel volumes jumped 6% year-on-year while revenue at its European parcels business climbed 10%.

This revenue growth should fuel further share price gains for 2018. Shares in the company currently trade at a forward P/E of 12.7 and support a dividend yield of 5.3%, which is around 2.5% above the FTSE 100 average. The payout is covered 1.5 times by earnings per share. If you’re looking for a cheap income play, Royal Mail could be a perfect pick for your portfolio.

Rupert does not own shares in Royal Mail.

Royston Wild: Bellway

Even though the trading environment remains pretty favourable for Britain’s housebuilders, Bellway (LSE: BWY) for one can still be picked up for next to nothing.

City analysts are expecting the business to keep its long-running growth story rolling with a 12% earnings rise in the year to July 2018. And this leaves the FTSE 250 firm dealing on a dirt-cheap forward P/E ratio of 8.4 times (as well a corresponding PEG reading of 0.7).

Bellway pleased the market in November with news that “trading has remained strong” during the first nine weeks of the new financial year, these conditions helping the firm’s order book to leap 17.4% to £1.36bn as of October 1. A similarly robust update on February 8 could provide the builder’s share price with some extra fuel.

Royston Wild does not own shares in Bellway.

Harvey Jones: Just Group

FTSE 250 pension and retirement specialist adviser Just Group (LSE: JUST) has struggled following a dip in equity release lifetime mortgage and care home plans, but the future looks brighter.

The £1.41bn company, created in 2016 by the merger of Just Retirement and Partnership, should rebound as growth in income drawdown offsets the annuity slump, and the equity release market continues to grow rapidly after nearly doubling in two years. Just Group has boosted margins from 3.3% to 8.9% in two years, yet trades at just 9.4 times forward earnings. A forecast yield of 2.6%, covered 4.3 times, suggests scope for progression on this front too.

Harvey Jones has no position in Just Group

Bilaal Mohamed: Micro Focus

My top stock for February is FTSE 100 technology firm Micro Focus International (LSE: MCRO). The global software giant is likely to see a significant level of growth in earnings over the next few years following the recent merger with Hewlett Packard Enterprise’s (HPE) software unit.

Indeed, in its recent half-year results the Newbury-based group revealed a mammoth 80.3% rise in  revenues to $1.2bn, with the newly acquired HPE software business contributing a very significant $569.8m. 

I see the recent dip in the share price as a great entry point for new investors, with the shares now trading on a forward price-to-earnings (P/E) ratio of just 14. 

Bilaal has no position in Micro Focus International.

Paul Summers: Non-Standard Finance

Subprime lender Non-Standard Finance (LSE: NSF) could be a great pick for both growth and income chasers going forward, assuming it can capitalise on the ongoing issues at Provident Financial.

Early indications are positive. By the end of December, the net loan book of Non-Standard’s Loans at Home business had climbed 53% in value to £51.2m thanks to the recruitment of 442 new agents — most of whom came from its battered peer. Non-Standard’s other businesses, including branch-based Everyday Loans, are also performing strongly.

With shares trading at just under 12 times forecast earnings, a yield of 4.2% and full-year numbers expected on 13 March, now might be a good time to buy a slice of the company.

Paul Summers has no position in Non Standard Finance.

Edward Sheldon: DS Smith

I quite like the look of FTSE 100 newcomer DS Smith (LSE: SMDS) at its current price. In my view, the packaging specialist, whose customers include Amazon and Asos, could be a good way to capitalise on the e-commerce boom.

DS Smith’s growth prospects this year look good. Revenue is expected to rise 19% for FY2018, while earnings per share and dividends are forecast to jump 5% and 7% respectively. Yet, the valuation remains attractive. The forward P/E is 14.9 which seems reasonable to me. A prospective dividend yield of 3.2% adds weight to the investment case.  

Edward Sheldon owns shares in DS Smith

Roland Head: Direct Line Insurance Group

Investors in home and motor insurance group Direct Line Insurance Group (LSE: DLG) are set to enjoy a 7.1% dividend yield for 2017.

This isn’t a one-off, either. The insurer has delivered a string of special dividends in recent years. And while these payouts are never guaranteed, I expect the group’s strong cash generation to result in a similar cash return this year.

City analysts agree. They’ve pencilled in a total payout of 26.2p per share for 2018, suggesting a yield of 7.0%. With the stock on a forecast P/E of 12, I’d rate this as an income buy.

Roland Head has no position in Direct Line Insurance Group.

Alan Oscroft: Kier Group

The demise of Carillion has certainly spooked investors in the outsourcing and construction sector, with fears that the contagion could spread to Interserve. But one competitor that I think is suffering unjustly is Kier Group (LSE: KIE), which has just put out an update that’s seriously making me reach for the buy button.

Kier carries debt, but that should be falling between now and 2020, and the firm’s well-covered forecast dividend yields of more than 6% look very attractive. Add earnings growth forecasts, and forward P/E multiples of only around nine to the mix, and I’m seeing an oversold bargain.

Alan Oscroft has no position in Kier Group.

Peter Stephens: Unilever 

Finding a mix of growth potential and defensive characteristics could be key to investment success at the present time. The current bull market could continue, or run out of steam. Rherefore, Unilever (LSE: ULVR) could be a sound buy.

The company is forecast to post a rise in earnings of 7% this year and 11% next year. This puts it on a PEG ratio of 1.5, which is low compared to sector peers. At the same time, its range of brands, customer loyalty and geographical spread mean that it is likely to perform relatively well in a variety of market conditions.

Peter Stephens owns shares in Unilever.

G A Chester: National Grid

Shares of National Grid (LSE: NG) have hit multi-year lows of late. I reckon now could be a good time to buy a slice of this business, which has a near-monopoly of ownership, and actual monopoly as operator, of Britain’s gas and electricity transmission infrastructure. It also owns an attractive portfolio of assets in the US.

I think concerns are overdone about regulators crimping profitability and Labour Party talk of renationalising utilities. Trading at less than 14 times forecast earnings and with a dividend yield of 5.6%, the stock is cheaper than it’s been in a long time.

G A Chester has no position in National Grid.

Jack Tang: National Express Group

My top stock pick for February is bus and rail operator National Express Group (LSE: NEX). The company stands apart from its transport sector peers by reporting strong earnings growth at a time when many are saying the industry is on a decline. Looking ahead, I reckon this outperformance is set to continue, due to its strong international growth, recent US tax changes and an improving UK performance.

Valuations remain undemanding despite bullish tailwinds, with shares in the company trading at 11.7 times its expected earnings this year. And there’s a 3.7% prospective dividend yield to look forward to, with City analysts expecting a 9% rise this year.

Jack Tang has no position in National Express Group.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended DS Smith and Micro Focus. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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