I’d happily sell this Neil Woodford Footsie share for this growth giant

Royston Wild looks at a growth share with superior investment possibilities to this Neil Woodford favourite.

| More on:

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.

As one would expect from someone of Neil Woodford’s calibre, the investment guru’s collection of funds are littered with many proven share market winners that have the capability to keep on delivering stunning returns.

But there are also plenty of what I would consider to be duds. One such stock is FTSE 100 clothing giant Next (LSE: NXT).

I used to own shares in the retailer back in the day but was encouraged to sell up as the rampant sales growth over at its Next Directory engine room has slowed markedly in recent times. The internet and catalogue division saw sales rise 5.7% in the six months to July 2017, down from 7.1% the year before; 8.2% in the same period in fiscal 2015; and 16.2% a year before that.

Next’s falling might can be attributed to the huge efforts its mid-tier competitors like Marks & Spencer have made developing their own online operations. But this is not the only reason, as shoppers have been seduced by the cut-price togs offered over at the likes of H&M and Associated British Foods’ Primark.

And the attack from these value-led new kids on the block is likely to intensify in 2018 and probably beyond as inflation continues to outstrip wage growth, and broader economic uncertainty forces consumers to tighten their pursestrings.

I like the way you work it

In this climate I would be much happier to splash the cash in Hays (LSE: HAS), a share making headlines in Thursday business after the release of latest trading numbers.

I’ve long been a fan of the recruitment giant on the back of its sprawling global presence. And these faraway territories once again came to the company’s rescue during July to December.

While its UK and Ireland marketplace remained “subdued” in the period, Hays continued to witness breakneck sales growth elsewhere. In Germany, its largest market, net fees jumped by 17% to an all-time high of £134.8m, and it reported record net fees in 19 of its other overseas markets. Promisingly, the FTSE 250 business is boosting its headcount in international markets (this rose 18% in the six months), and particularly in its critical German territory, to keep business flowing in.

Accordingly, City analysts expect earnings growth to reach double digits in the 12 months to June 2018, to 15%, and for Hays to follow this with a 10% advance in fiscal 2019. In my opinion a prospective P/E ratio of 17.6 times is a small price to pay to tap into the recruiter’s exceptional earnings prospects.

Further profits pain predicted

As I said, Next is sitting on much shakier ground and this is reflected in current broker forecasts. For the 12 months ended January 2018 a 7% earnings drop is forecasted, and the retailer is expected to follow this with a 1% decline in the current year.

A 3% rebound is forecast for fiscal 2020 but I remain far from convinced that Next has what it takes to bounce back into growth any time soon, particularly as growing cost pressure heaps further strain on margins. In my opinion investors should ignore the company’s cheap forward P/E ratio of 12.1 times and shop for other shares.

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.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Associated British Foods. 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 »