Every month, we ask our freelance writers to share their top ideas for shares to buy with investors — here’s what they said for July!
[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]
Compass Group
What it does: Compass is a global food services group that offers dining solutions to a range of organisations across the world.
By Harshil Patel. Compass Group (LSE:CPG) is a world-class business and a specialist in its field.
The pandemic was a challenging period for a company that benefits from workers heading to offices.
But three years on, it’s in a much better place. Pre-tax profits grew 31% in the six months to March. And the outlook looks encouraging.
Post-pandemic, more organisations are outsourcing their catering. That could be due to challenges relating to inflation and greater health-related rules, both of which has made in-house catering less attractive.
Compass can provide a lower cost alternative that can manage complex requirements in a post-Covid world.
It should also benefit from long-term structural trends that include population growth and more people working in cities around the world.
In contrast with the USA, bear in mind that food inflation is still rising in Europe and UK. These regions comprise of 23% of its sales. And these higher food costs could put pressure on profit margins.
Overall, though, I’d consider it a long-term winner.
Harshil Patel does not own shares in Compass Group.
Forterra
What it does: Forterra is a brick manufacturer. Its products include the London Brick used in 25% of UK housing stock.
By Stephen Wright. Top of my list of shares to buy is Forterra (LSE:FORT). The UK brick manufacturer has had a bumpy time in June, but I think this could be a great opportunity with the share price down.
There’s an obvious risk of a dividend cut, with higher rates weighing on demand in the housing market. But I think the company’s prospects are better than its price implies.
I think higher rates might also weigh on the supply side of the market. The prospect of getting a low price and facing higher repayments might deter owners from selling.
If that happens, it should help offset the imbalance between supply and demand. This would leave room for new build houses – and the manufacturers that supply them.
I’m therefore optimistic that the outlook for Forterra might not be as bad as its share price implies. That’s why it’s my top UK stock to buy.
Stephen Wright owns shares in Forterra.
Spirent Communications
What it does: Spirent Communications provides automated test and assurance solutions for next-generation devices and networks.
By Kevin Godbold. Spirent Communications (LSE:SPT) has developed a great business over the years. There’s a strong multi-year record of steadily rising revenue, earnings, cash flow and shareholder dividends. And the quality indicators are top-notch.
But quality has been trashed in these markets along with much else. And I now believe Spirent shares have an attractive valuation for investors seeking a long-term buy-and-hold.
With the share price in the ballpark of 170p, the forward-looking earnings multiple is around 12 for 2024. And the anticipated dividend yield is just over 3.6%.
Those figures look attractive to me. But one risk is that earnings growth has recently stalled. And if it doesn’t get back into gear in the coming years, the valuation may contract further.
In the first-quarter update, the company spoke of ongoing customer order delays but said the situation is industry-wide. And the directors think customer momentum will pick up later in the year.
Kevin Godbold does not own shares in Spirent.
