One 6% yielder and one growth stock I’d consider buying today

Harvey Jones is excited by this road-ready turnaround play’s high yield and low valuation.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

After a very rocky ride that has dragged on for more than three years, the AA (LSE: AA) is finally motoring again. Its stock is up 5.62% after publication of a promising pre-close trading update for the year ended 31 January, as investors anticipate a smoother journey ahead.

Grade AA

The roadside assistance and insurance group reported that full-year trading earnings before interest, tax, depreciation and amortisation should come in at £390m to £395m, in line with last September’s guidance. New members grew 7% year-on-year while retention was broadly flat at 82%, even though Insurance Premium Tax has fuelled yet another large premium hike.

The AA did report a drop of around 1% in paid membership to 3.29m, or 70,000, but that was mostly down to discontinuing free roadside membership for its insurance customers, which blocked the pipeline of free-to-paid conversion.


Insurance services and underwriting are performing well, with 6% growth in motor policies to 629,000, which offset an expected 5% decline in home policies to 818,000. The business continues to generate healthy levels of cash, while last year’s refinancing has further reduced its borrowing costs and extended the average maturity of the group’s debt. 

The AA has a strong brand and distribution platform and is investing further resources in this area, with more than a million members now registered for its app. There may be further bumps in the road but these look baked into its lowly forecast valuation of just 5.8 times earnings.

The yield is purring at a forecast 6.6%, covered 2.6 times. City analysts reckon earnings per share (EPS) may fall 3% in full-year 2018, but should accelerate to 7% in 2019 then 10% in 2020. This looks like an AA-rated income and growth play right now but my Foolish friend G.A. Chester has also warned of the potential dangers, noting that the AA still has a huge debt pile.

Cop out

Last time I looked at Millennium & Copthorne Hotels (LSE: MLC), in June last year, I described the stock as one to sleep on for now. That looked like a good call until October, when the shares suddenly rocketed on sudden takeover talk, after its Singapore-based parent company proposed a full cash buyout of its London-listed subsidiary. However, the stock has trailed downwards since then as critics rounded on what many see as a low bid.

Its share price has ticked up slightly on publication of today’s full-year and Q4 results to 31 December, which revealed a 7.9% rise in annual revenue per room, helped by the weaker pound and strong growth across its markets, with the exception of Europe.

Brexit bother

Reported revenue per available room (RevPAR) rose in all regions in Q4 but fell 2.9% due to a drop in occupancy, with the company claiming Brexit concerns have affected all its hotels, especially in London, adding to pressure on labour costs from the recent minimum wage increase.

Last month, Singaporean billionaire Kwek Leng Beng’s £2bn buyout offer was blocked by minority shareholders who refused to tender their shares, around 37% of the total, into “such an unattractive offer”. Today’s results have done little to reignite investor enthusiasm. One to watch, rather than buy today. Especially when there are far racier stocks on the market right now, such as the AA. Brrm, brrm.

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 assessed. Consider taking independent financial advice.

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

More on Investing Articles

British union jack flag and Parliament house at city of Westminster in the background
Investing Articles

Labour winning the general election would be positive for UK stocks, says JP Morgan

One mega-bank thinks certain UK stocks could benefit following the 4 July election. This writer considers a FTSE share that…

Read more »

Older couple walking in park
Investing Articles

No savings at 40? Here’s how I’d aim to retire comfortably with FTSE 100 stocks

It's never too late to begin investing in FTSE 100 stocks for retirement. Royston Wild reveals three steps to help…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Down 17%, is National Grid’s share price a FTSE 100 bargain?

National Grid's share price has taken a battering following a multi-billion-pound rights issue and dividend rebasement. Is it now too…

Read more »

Environmental technology concept
Investing Articles

Up 150% this year! Can NVIDIA stock keep on soaring?

Christopher Ruane explains why NVIDIA stock has soared over 150% already this year, where it might be going -- and…

Read more »

Investing Articles

Down 44% in a year, here’s why the Aston Martin share price could keep struggling

Not only has the Aston Martin share price collapsed in recent years, our writer sees its current business performance as…

Read more »

Investing Articles

I’m considering these 2 high-growth stocks to buy as a technology investor

Our author thinks Kainos and Softcat could be two of Britain's best tech investments. He thinks the risks in the…

Read more »

Abstract 3d arrows with rocket
Investing Articles

A once-in-a-decade opportunity to buy these FTSE 100 growth shares before they rocket?

Our writer highlights two FTSE 100 growth stocks he thinks could seriously outperform as interest rates are cut and economic…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing For Beginners

Down 14% in a month, is this the FTSE 100’s biggest bargain right now?

Jon Smith mulls over whether he should buy one of the worst-performing FTSE 100 stocks based on it being an…

Read more »