Every month, we ask our freelance writers to share their top ideas for shares to buy with investors — here’s what they said for February!
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What it does: Aviva is a leading savings, retirement, investments and insurance business.
By Andrew Mackie. Since taking the reins at Aviva (LSE: AV) back in 2020, Amanda Blanc has set about transforming the company’s fortunes. It has jettisoned a number of non-core businesses and is now squarely focused on its core markets of UK, Ireland and Canada.
A leaner Aviva should enable it to capitalise on some of the most compelling growth themes of the next decade. Chief amongst these include unlocking the estimated £2trn bulk purchase annuity market, as well as capitalising on the growing trend for individuals to take personal responsibility for building wealth throughout their working life in order to fund retirement expectations.
Aviva has provided clear forward guidance on its dividend policy. For the financial year beginning in April, payouts are expected to top £900m. The yield is estimated at 7.5%. However, given its well-capitalised position, I would not be surprised if a further payment is made when it announces its full year results in March.
Andrew Mackie owns shares in Aviva.
What it does: Burberry is a British luxury fashion brand that sells its premium goods globally through its 221 retail stores, 139 concessions, 56 outlets and 38 franchise stores.
By Harshil Patel: I’d consider Burberry (LSE:BRBY) to be one of the best British shares to buy in February. As a luxury brand, it’s likely to be more resistant to a recession than mid-range brands. Its customers tend to be less impacted by the rising living costs that the rest of the population might face.
That could be why trading in Europe is performing particularly well, driven by a strong Christmas period. Outside of Mainland China, Burberry’s third quarter sales grew by 11%.
China currently provides roughly a quarter of Burberry’s sales. But Covid-19-related disruption caused a slump in sales there. However, with the end of China’s zero-Covid policy and the end of lockdowns, Burberry could see a rebound in fortunes.
Burberry is a high-quality business that benefits from 20% return on capital employed, and 20% operating profit margin. That said, this luxury business isn’t cheap. But at a price-to-earnings ratio of 20, it’s within its historical range.
Harshil Patel does not own shares in Burberry.
What it does: Halma is a conglomerate that owns a collection of businesses focused on industrial technology niches.
By Stephen Wright. With the FTSE 100 near all-time highs, finding bargains in the UK stock market is tough. As a result, I’m following the Warren Buffett approach of looking for a wonderful company at a fair price.
That means buying shares in Halma (LSE:HLMA). Three things stand out to me about the company.
First, its businesses have dominant positions in niche markets. This makes them hard to disrupt and gives the company an economic moat.
Second, it doesn’t take much capital to run. Over 70% of the income the company generated through its operations becomes free cash flow available to shareholders.
Third, it has a decentralised organisational structure. This allows managers to use their individual expertise to run their specific businesses.
That’s why Halma is my favoured stock to buy in February. It’s not the most obvious bargain ever, but I think it will prove to be a good investment over time.
Stephen Wright owns shares in Halma.
What it does: Ibstock produces construction products and is Britain’s biggest brick manufacturer by production capacity.
Sales volumes here dropped during the fourth quarter of 2022 as the construction sector weakened. Yet Ibstock said that its performance remained “resilient” thanks to strong price and margin management. In fact, the business said that adjusted EBITDA for last year would beat its prior expectations.
Demand for bricks might be weak in 2023 if the housing sector remains weak. Sales to the repair, maintenance, and improvement (RMI) market could also disappoint as the UK economy toils.
But I believe these risks are baked into Ibstock’s current valuation. The business now trades on a forward price-to-earnings (P/E) ratio of 11 times.
The FTSE 250 firm also carries a healthy 4.7% dividend yield at current prices, more than double index average. I expect profits here to grow strongly over the long term as new homes demand steadily rises.
Royston Wild owns shares in Ibstock.
What it does: Investec is a specialist bank and wealth manager that offers financial services to a niche client base.
By Charlie Carman. FTSE 250 constituent Investec (LSE: INVP) is dual-listed in London and Johannesburg. The bank earns the lion’s share of its adjusted operating profit in southern Africa. Its other core market is the UK.
The interim results to the end of September were encouraging. Adjusted earnings per share increased by 25.1% compared to the same period in 2021. In addition, the return on equity rose from 11.2% to 13%, which is within the company’s target range.
South Africa’s febrile political situation and endemic corruption issues continue to ward off foreign investment. Admittedly, this could limit Investec’s growth prospects.
Nonetheless, the bank expects the country will benefit from higher annual GDP growth than the UK for the next half-decade, which counterbalances the risks somewhat.
Investec’s share price has climbed nearly 31% on a 12-month basis. I believe there’s a good chance it can continue to deliver excellent returns in 2023 and beyond for investors buying its shares in February.
Charlie Carman does not own shares in Investec.
What it does: Londonmetric Property owns and leases a commercial real estate portfolio of over 17 million square feet across the United Kingdom.
By Zaven Boyrazian. It’s been a rough 12 months for Londonmetric Property (LSE:LMP) shareholders. The commercial real estate group owns a diverse collection of properties (predominantly warehouses) scattered across the UK. But with rising interest rates, the value of its asset portfolio has been hit hard, resulting in a 30% decline in market cap.
Yet, despite what the downward share price trend would suggest, rental income is still growing by double-digits. So much so that management recently increased dividends despite all the economic uncertainty.
Thanks to maintaining a tenant list of robust businesses like Amazon and Primark, occupancy remains at an all-time high of 98.7%. And with plenty of resources at hand, the group has been busy adding more properties to its portfolio at discounted prices.
Rising interest rates could slow future growth as debt becomes more expensive. But the firm’s current strength and impressive historical track record make me optimistic about its future.
Zaven Boyrazian owns shares in Londonmetric Property.
Marks and Spencer
What it does: Founded in 1884, Marks and Spencer is one of Britain’s oldest companies. Originally a homeware retailer, the company eventually branched out into groceries and apparel.
Like other retailers and supermarkets, M&S suffered throughout 2022 as it saw its bottom line gobbled up by exorbitant energy and labour costs. Nonetheless, sky-high inflation may have found a peak and could start to taper off in 2023. This would allow the retail giant to revert back to margin expansion while capturing market share with its ever-improving omni-channel offering.
In fact, the signs so far have been positive. Its latest trading update showed much better top-line performance than other supermarkets and retailers, as UK sales grew a healthy 9.7%. Pair this with a growing market share and improving return on capital employed, and I can see bottom-line growth for the stock coming up. After all, with its cheap current valuation multiples, I see no reason not to buy its shares.
John Choong has positions in Marks and Spencer.
What it does: York-based FTSE 100 member Persimmon is one of the UK’s biggest housebuilders
Sure, this sector is now seeing weaker demand due to concerns over the economy. Indeed, Persimmon recently reported “lower sales rates and elevated cancellations” in the second half of 2022. Things could easily get worse before they get better if mortgage rates keep rising.
Naturally, the market already knows this. The question is, how much of it is already priced in?
The share price has absolutely tanked in the last year, so I think quite a lot. Even if the dividend ends up being reduced to a more reasonable level, Persimmon still has a strong balance sheet and a quality land bank.
Things won’t recover overnight, but buying shares now as part of a diversified portfolio could pay off handsomely for me in the medium term.
Paul Summers has no position in Persimmon
What it does: Prudential is a savings and insurance company that is focused on the Asian and African markets.
One is that the company’s revenues and profits are likely to get a big boost now that the mainland China/Hong Kong border is open. Hong Kong is a major hub for Prudential. And before Covid, mainland Chinese were the biggest buyers of insurance policies in the region. Given that the border was shut for around three years, there’s likely to be a lot of pent-up demand for insurance products.
Another reason is that the shares look attractively valued. As I write this, Prudential’s forward-looking P/E ratio is around 13. I think that’s an attractive valuation given the company’s long-term growth potential.
It’s worth noting that Prudential shares are more volatile than the broader UK market. So, I’m prepared for some share price fluctuations here. Overall, however, I think the risk/reward skew is attractive.
Edward Sheldon owns shares in Prudential
Scottish Mortgage Investment Trust
What it does: Scottish Mortgage invests globally in high-growth companies in both public and private markets.
Yet the trust has experienced even larger drawdowns before, and has always recovered to reach new highs. I expect that to happen again (eventually).
Its top holding today is biotech Moderna, which is using its mRNA technology to target dozens of diseases. Another holding is SpaceX, which is on the cusp of launching Starship, the most powerful rocket in history.
One concern is that the trust has reached its 30% allocation limit for private companies. That means it cannot provide follow-up funding to its existing holdings. The risk is that some of these smaller start-ups run out of money.
However, the trust currently trades at a 8.5% discount versus its net asset value (NAV). So now looks a good time to buy shares in my opinion.
Ben McPoland owns shares in Scottish Mortgage Investment Trust.
What it does: Whitbread owns UK hotel chain Premier Inn, and is expanding into Germany.
By G A Chester. I like Premier Inn hotels for the reliability of their offering and reasonableness of their price. I think the shares of the chain’s owner, Whitbread (LSE: WTB), are also reasonably priced right now.
The company reported “continued positive trading momentum” in a recent third-quarter update. With a strong performance across both London and the regions, and a well-balanced mix of business and leisure guests, revenue was 29% ahead of the pre-pandemic third quarter. Despite this, the shares are over 25% lower.
Premier Inn still has significant room for growth in the UK and Ireland. Management sees potential for 125,000 rooms, compared with a current 83,000. And it has a huge opportunity to replicate its success in the even bigger market of Germany from its current 10,000 or so rooms.
The challenging macroeconomic environment is a near-term risk, but I reckon Premier Inn’s brand power and scale give it an advantage over its competitors.
G A Chester does not own shares in Whitbread.