Every month, we ask our freelance writers to share their top ideas for shares to buy with investors — here’s what they said for January!
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What it does: Harbour is a North Sea energy firm that’s the UK’s largest oil and gas producer, which also has operations in Mexico and Indonesia.
Production rose by 27% to 207,000 barrels of oil equivalent per day during the nine months to 30 September. Operating costs have stayed low, at just $14 per barrel.
As a result, the firm is expected to report a record profit of around $1.4bn this year, on sales of $5.4bn. By the end of 2023, management expect to have completely repaid the group’s net debt of $1.1bn.
The risk is that oil is a boom-and-bust industry. High prices probably won’t last forever. Some of the firm’s oil and gas fields are also getting old. They’ll eventually need decommissioning.
These factors probably explain why Harbour’s share price has fallen by 40% since April. But the shares are now trading on just 2.7 times forecast earnings, with a 6% yield. I think that’s too cheap.
Roland Head does not own shares in Harbour Energy.
InterContinental Hotels Group
What it does: IHG is a global hotel chain. Its brands include Holiday Inn, Iberostar, and Six Senses.
By Stephen Wright. InterContinental Hotels Group (LSE: IHG) is a business that ticks a lot of boxes for me. Warren Buffett says that the best businesses are ones that can grow without needing capital to grow and I think that this company fits the bill.
Most of InterContinental’s hotels are run on a franchise basis. That means that the company doesn’t own the physical buildings itself, but takes a fee from the owner, who runs the hotel as part of the IHG network.
As a result, the company has extremely low growth and maintenance costs. The running costs of its hotels are left to operators and it doesn’t have to pay to add new hotels to its network (it gets paid by the franchisee instead).
This makes for some impressive financial metrics. IHG generates just over £770m in operating income using only £410m in fixed assets and around 75% of that income becomes free cash.
Stephen Wright does not own shares in InterContinental Hotels Group.
Big Yellow Group
What it does: FTSE 250 member Big Yellow Group provides secure and modern self-storage for homes and businesses.
This doesn’t come as much of a surprise. Statutory pre-tax profit in the first half of its financial year plummeted to £6.8m from almost £255m in 2021.
On a positive note, the real estate investment trust has stated that it is seeing a correction in land prices. Unless we’re about to become a nation of minimalists, this bodes well for future growth. The interim dividend was also raised, leaving the stock with a forecast yield of 3.9%.
It may operate in a competitive space but I reckon Big Yellow has both the brand and financial stability to take the battle to rivals.
Paul Summers has no position in Big Yellow Group.
What it does: YouGov is a global public opinion company specialising in market research and data analytics.
Both its revenue and operating profit have more than doubled over the last five years. In its 2022 full-year results (year ended 31st July), all three of its divisions recorded double-digit growth on an underlying basis.
YouGov is now truly global, with operations across Europe, North America, the Middle East, and Asia. Its product – reliable and trustworthy opinion data – is highly valued by companies, governments and organisations. I don’t expect that to change any time soon.
One consideration is that YouGov shares are trading at 30 times forward earnings. That isn’t cheap, even after the stock’s 33% pullback this year.
However, profits are expected to grow rapidly over the next few years. January might be an opportune time for me to buy some shares.
Ben McPoland owns shares in YouGov.
What it does: Spirent tests, troubleshoots and offers automation solutions for its customers’ devices, networks, services, and security solutions.
By James J. McCombie. Over the last five years, Spirent (LSE: SPT) has grown its revenues by 5.9% each year on average. Maybe that’s not awe-inspiring, but the company’s operational improvements in that time are impressive. Operating margins have expanded to 18.2%, and normalised earnings per share have doubled from 7.8p to 15.8p.
With its customers moving to the cloud and 5G and exploring the internet of things, providing for remote working, Spirent’s services should remain in demand. It spends a hefty 22% of its revenues on research and development to keep up with the intricacies of serving that demand.
Spirent has a dividend yield of 2.13%, and payouts have been growing at 12.6% on average over the last half-decade. Dividend cover is forecasted to remain above 2.2 for the next few years suggesting safety. But, with a P/E ratio of 18.7, this stock is a little expensive compared to the industry and wider market averages.
James J. McCombie does not own shares in Spirent Communications
What it does: Greggs is one of the UK’s largest bakery chains providing fresh and popular on-the-go food to consumers nationwide.
By Zaven Boyrazian. While buying shares in a glorified bakery may not seem like prudent investing, Greggs (LSE:GRG) continues to defy expectations. It turns out that selling pastries and sausage rolls can be immensely profitable! And even with consumer spending dropping off a cliff lately, the firm is still delivering double-digit sales growth.
With over 2,200 stores scattered across the country, Greggs continues to expand its operations while maintaining its vertically integrated structure. Beyond ensuring supply chains remain undisrupted, it provides complete control over production. This enables management to rapidly introduce new products and adapt to ever-changing consumer tastes and diets.
Its resilience to wobbly economic conditions is a testament to the brand’s popularity among consumers. Yet if things worsen, households may start cutting back on their excursions to the bakery chain. That would obviously be bad news for the business. Nevertheless, its proven track record of success makes me bullish for the long-term future.
Zaven Boyrazian does not own shares in Greggs.
What it does: Ibstock manufactures construction products from 36 factories and is the UK’s biggest brick supplier by volume.
By Royston Wild. The share prices of Britain’s listed brick manufacturers have collapsed as worries over the housing market have grown. FTSE 250 operator Ibstock (LSE: IBST) has lost a quarter of its value since the start of 2022.
I think this decline represents a great dip-buying opportunity. Especially as trading news from the sector continues to impress.
Ibstock traded ahead of expectations between July and September, it announced in mid-October. It said that this was thanks to “robust demand patterns and strong operational performance.”
Then in late November Brickability Group announced like-for-like growth of 9.3% between April and September. It said that it had enjoyed “continued strong order intake” at the start of the second half, too.
A sharp slowdown in the housing market is a risk to Ibstock and its peers. But a rock-solid repair, maintenance and improvement (RMI) market means that sales keep impressing.
Today Ibstock trades on a P/E ratio of 9.8 times for 2023. I think this represents excellent value.
Royston Wild owns shares in Ibstock.
Lloyds Banking Group
What it does: Lloyds is a high-street bank, and the UK’s biggest mortgage lender.
By Alan Oscroft. It’s a stock I’ve held for years, through ups and downs (mostly downs). But even through the tough times, it’s paid me decent dividends, most years.
I’m talking of Lloyds Banking Group (LSE: LLOY).
Would I be mad to buy a bank stock in a recession? And a mortgage lender when the property market is slowing? Maybe.
But right now, I see one simple reason to buy Lloyds shares in January. I reckon panicking investors have pushed the valuation too low.
We’re looking at P/E multiples of under seven, which is around half the long-term FTSE 100 average. And dividend yields are above 5%, heading close to 6.5% on 2024 forecasts.
The risks are real, and I know I could be in for a bumpy ride as we weather the economic storms.
But does anybody really think that banks won’t generate big profits over the long term? Or that the UK’s chronic housing shortage has ended?
Alan Oscroft owns shares in Lloyds Banking Group.
What it does: Victrex manufactures a range of polymers for use in industries such as automotive and aviation.
By Christopher Ruane. I can now buy shares in Victrex (LSE: VCT) for a third cheaper than I could have done at the start of the year. That reflects some of the risks the company faces, such as higher energy costs eating into profit margins. Last year, gross margin fell from 54% to 51.2%.
Longer term, though, I think Victrex’s business model is compelling. Its technology is used in mission-critical applications, meaning customers are willing to pay for quality. Patents on some of the firm’s polymer technology give Victrex a unique competitive advantage.
Last year saw sales volumes grow 8% and revenues rise 11%. Profit before tax fell 5% but still came in at £88m. Despite smaller profits overall, earnings per share rose 4%, The business is highly cash generative and yields 3.7%.
As a long-term investor, Victrex offers me the sort of solid business prospects I like — at a price I find attractive.
Christopher Ruane owns shares in Victrex.
What it does: Fresnillo is the world’s largest primary silver producer and one of Mexico’s largest gold producers.
By Andrew Mackie. The last couple of years have been very frustrating for precious metals investors. However, clear signs are emerging that the industry might well have bottomed. Last month, silver had its best November performance in its history, as its price rose 16%. Unsurprisingly, the Fresnillo (LSE: FRES) share price reacted positively to such a move and is up 25% in six weeks.
I am of the firm belief that we are still very much in the early innings of a bull market for precious metals. What I really like about silver is that it is not only a monetary metal but its integral role in the green revolution.
Silver is a key component for many green technologies including renewable power, off-grid energy storage, and electric vehicle charging stations. In the years ahead, I envisage a world of elevated demand and tight supply. Consequently, I believe its share price is extremely cheap even after its recent rebound.
Andrew Mackie owns shares in Fresnillo.
Scottish Mortgage Investment Trust
What it does: Scottish Mortgage is a global trust that has over 100 companies in its portfolio, including unlisted businesses such as SpaceX.
By Charlie Keough. Shares in Scottish Mortgage (LSE: SMT) have far from impressed this year, down around 40% in 2022. But despite this, I think January could be a great time for me to snap up the trust.
What I most like about Scottish Mortgage is the diversity it offers my portfolio. As a retail investor, gaining access to a variety of companies under one investment is perfect for me. And with cheap ongoing prices of 0.32%, this makes Scottish Mortgage further attractive.
The stock has struggled this year due to its heavy focus on growth stocks, such as Tesla. And with racing inflation, investors tend to veer away from these riskier investments. Yet, over the long run, I think its exposure to growth stocks places the trust in good stead for its share price to soar. After all, Scottish Mortgage did buy Tesla back in 2013 for $6 a share!
Rising inflation alongside its exposure to China could see it suffer in the near future. But as a long-term buy, I’d happily snap up Scottish Mortgage shares.
Charlie Keough has no position in any of the shares mentioned.
What it does: Diageo is a multinational alcoholic beverage conglomerate. It’s one of the world’s largest distillers.
By John Choong. A recession may be looming in the UK, but this hasn’t stopped consumers from drinking. As such, I think shares in Diageo (LSE:DGE) could be a great value stock to buy for my portfolio.
The current cost-of-living crisis presents a headwind for many retailers, but Diageo expects its spirits to continue flying off the shelf. CEO Ivan Menezes forecasts consistent sales growth of 5% to 7% through to FY25, with operating profit growth of 6% to 9%. Although these numbers aren’t stellar by any means, it should protect my portfolio from downside risks during a recession.
After all, the likes of Barclays, JP Morgan, and Credit Suisse have an ‘overweight’ rating for the stock with an average price target of £47.76. That being said, its high level of debt (£16.30bn) to cash (£2.42bn) is something I’m looking into, as future repayments may hinder the company’s ability to grow its bottom line and return more value to shareholders.
John Choong has no position in Diageo, Barclays, JP Morgan or Credit Suisse.