Sales in focus

This week there are two interesting companies that should be tying the knot during Q3 both reporting to the market. Sainsbury’s (LSE: SBRY), one of the big four supermarkets, and Argos owner Home Retail (LSE: HOME). While not naturally linked, Sainsbury’s has made an offer for Home Retail that has been accepted by the board and recommended to shareholders so the two should be looking for maximum synergies come Q3.

Since the offer was made earlier this year, Home Retail’s shares have (rather unsurprisingly) outperformed the wider market, so too have Sainsbury’s owing to a better than expected sales performance than was feared by the market. However, as can be seen by the chart, both of the shares have been falling of late, in line with a number of other retailers.

First up will be Sainsbury’s reporting on Wednesday. Investors will be hoping for signs of like-for-like sales improvement, which is unlikely given the downbeat view of Kantar Worldpanel on the major supermarkets published at the beginning of May. That said, under the leadership of CEO Mike Coupe, the group is showing signs of turning itself around with better than expected results revealed at the start of May.

Following Sainsbury’s on Thursday is Home Retail. Given the upcoming transaction with Sainsbury’s in the third quarter, any further deterioration in trading could impact on both share prices as the market may call into question the merits of the deal, especially due to the strength of rivals such as Amazon where growth is showing no signs of stopping.

Just Argos it?

All that said, despite the difficult environment across the retail sector, it doesn’t look to me that Sainsbury’s has overpaid for Argos and its infrastructure given that management believes the acquisition will be earnings enhancing in the first full year following completion. That’s despite the near-14% dilution that will be bought about by the issuance of 261m new shares during the third quarter.

In addition to the earnings enhancements, management believes it can bring about significant synergies (cost savings to you and I) as head office functions and infrastructure are merged, bringing about a leaner machine within the next three years.

Additionally, many Argos stores will be either closed or relocated as leases expire, meaning we should start to see much more in the way of Argos concession stores in our local Sainsbury’s store, which could boost sales.

Fighting on all fronts

However, as I’ve alluded to above, the sector is currently crowded, which in the end will mean survival of the fittest – whether that means disruptive businesses such as Amazon, or eBay, only time will tell.

Combine that with an ultra-competitive, not to mention deflationary, grocery sector and it means Sainsbury’s needs to be up for the challenge and executing the company strategy to the letter in order to stay competitive.

The post Is J Sainsbury plc biting off more than it can chew with Home Retail Group plc? appeared first on The Motley Fool UK.

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Dave Sullivan has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

If the UK votes to leave the EU on 23 June, London’s benchmark FTSE 100 index could be nursing a hefty 10% loss over the next 12 months, with certain sectors such as housebuilders and other cyclical sectors suffering greater losses according to UBS Wealth Management.

Adopt the brace position 

The view of the wealth manager suggests that the performance of London-listed companies is dependent on the outcome of the impending referendum. A vote to leave the EU could send the market crashing, while a remain vote could mean that the blue chip index could surge by 5% giving a 15% variance – a material amount.

In addition, it has been suggested that the pound could plunge to a low of 1.25 against the dollar on the event of a Brexit. These are lows that haven’t been seen for some time, though this would obviously boost earnings for those companies that conduct a meaningful part of their business overseas.

My personal view is simply that the market will remain volatile. As we’ve seen during this shorter week of trading, Mr market has been spooked by the re-emergence of the possibility that the UK voting public will actually vote to leave the single market. If there’s one thing that the market hates – it’s uncertainty. We witnessed this in spades during the build-up to last year’s General Election with housebuilders and some utilities seeing their share prices suffer owing to differing political policies, only to rally strongly when it became clear that there was an outright winner.

Buy defensive or buy for growth?

I’d be among the first to encourage fellow investors to adopt a balanced approach to their investing, with a portfolio consisting of both growth shares and stocks considered to be more defensive such as Unilever (LSE: ULVR) and Reckitt Benckiser (LSE: RB).

And while it can be foolish to shift your entire portfolio into more defensive shares during uncertain times such as these, there is, in my view a case to simply include these low volatility or low beta stocks as a mainstay of your portfolio, whatever the weather.

Indeed, turning to the 10-year chart below, which tracks the share price performance of both Unilever and Reckitt Benckiser against the blue chip index, we can clearly see that these boring shares have left the market for dust.

Getting rich slowly

And if the market-trouncing outperformance isn’t enough – just think of the dividends that have been paid to holders of these shares through both good times and the more difficult years. These dividends can sometimes mean the difference between positive and negative returns, especially in more difficult market conditions such as we’re seeing now.

Unfortunately, many novice investors will often hold a concentrated portfolio, usually compounded further by concentrating on a certain sector (usually the oil exploration and mining sectors).

Often this is folly and leads to either average or poor performance against the market, and as we can see from the chart, the FTSE 100 (excluding dividends) has essentially been flat over the last 10 years, which means that many will have suffered significant losses.

The post Why Unilever plc and Reckitt Benckiser Group plc are for life – not just for Brexit appeared first on The Motley Fool UK.

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Dave Sullivan has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Reckitt Benckiser. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

The stock market is an interesting beast, be that bull or bear it plays on our emotions and behavioural biases, which can make most of us, not to mention professional investors, look like monkeys from time to time.

Indeed, before the bank holiday everything was looking rosy. The polls were pointing to the UK remaining in the single market, oil was on a march higher, and in general the market was in a positive mood.

 ….to risk off

Just three days later and the mood of Mr Market started to swing in a more southerly direction. A combination of increasing uncertainty in the result of the upcoming EU referendum, the continued volatility of Sterling, and Brent crude dipping below the psychologically important $50 per barrel, helped to see the FTSE 100 close lower for the second day in a row at 6,191, albeit off its intraday lows.

Despite the renewed doom and gloom there have been some bright spots over the last month, which, in my view are worthy of note.

Safe as houses?

As we can see from the chart, it wasn’t just stocks exposed to the rising oil price that saw their share prices rise since the start of May. Indeed, like many other housebuilders, Taylor Wimpey (LSE: TW), Bovis Homes (LSE: BVS) and Bellway (LSE: BWY) all beat the market by double-digits – until today when the fear of a Brexit, or more to the point the ramifications of a Brexit, struck their share prices again yesterday.

However, as I’ve written before it’s important for investors to cut through the noise and focus on the actual investment – not the continual news flow that can cause even the best of investors to lose their focus from time to time.

While I would be the first to accept that retaining your focus in times like these is much, much harder in practice, investors in my view should look at the news flow from the companies themselves.

In fact, the news flow has been nothing but positive with the general view that the UK new-build housing market remaining very positive across most of the UK, with a healthy and controlled lending environment providing good accessibility to mortgages at competitive rates.

Indeed, consumer demand and confidence remain high, and in central London (an EU result-sensitive market), the trading environment continues to be stable.

For those that have mentioned the dreaded ‘B’ (Brexit) word, it’s only to highlight that it has had no discernible impact on trading.

Cash in the attic

With trading continuing in line with expectations (despite what could happen on or after 23 June) management at these firms seem to have learned their lessons from the 2008 financial crisis. They continue to focus the businesses on sustainable growth while returning excess cash to shareholders via double-digit dividend increases or special dividends, meaning that despite what you may read in the general press, these shares are definitely worthy of further consideration.

The post Top of the stocks: Taylor Wimpey plc, Bellway plc and Bovis Homes Group plc housebuilders’ double-digit rally appeared first on The Motley Fool UK.

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You could argue that investors should do one of two things:

1. Don’t worry about the research – simply buy a low cost tracker fund that broadly tracks the market but will never outperform.
2. Take a little more time to look beneath the bonnet of the shares with a view to outperformance.

With that in mind I’ve selected two shares. One of these is one of the best known in the FTSE 100 while the other is a more under-the-radar member of the FTSE 350, but one that could be worthy of further research.

Stick with what you know?

Centrica (LSE: CNA) is the £11bn integrated energy company operating through three main segments: International Downstream, International Upstream and Centrica Storage.

As you probably know, most players in this sector have been struggling with falling commodity prices, and while oil has been on the march lately there’s still some way to go before many companies return to profit.

That said, Centrica management has made two interesting acquisitions recently, funded by an equity raising of £700m (before expenses), which is also expected to add support to the balance sheet.

It seems Iain Conn, the new CEO is starting to diversify the business away from its exposure to the oil price with Neas Energy, a provider of energy management and revenue optimisation services for decentralised third-party owned assets, and ENER-G Cogen International Limited an established supplier and operator of combined heat and power (CHP) solutions.

Or try something a little different?

Less well known is the £650m FTSE 350 member PayPoint (LSE: PAY), a UK-based holding company. Through its subsidiaries provides clients with specialist consumer payment and other services and products, transaction processing and settlement.

A key focus of the business is recruiting customers to use PayPoint’s integrated platforms. Clients range from the energy sector (including one of the ‘big 6’), as well as telecoms, financial, gaming, retail and public sectors. They can serve their customers across many touch points seamlessly with payments embedded in their services.

For me this is a key attraction of the business as it does service the energy sector but is not exposed to the rise and fall of the price of oil and gas to the extent that the energy suppliers are – thus reducing volatility.

The chart paints a thousand words

As we can see from the chart, both shares have been weak over the past 12 months, mainly due to one of the warmest winters in recent times, which has affected both businesses. Meanwhile, the slump in oil prices has impacted Centrica, and the realisation that it won’t be able to sell its mobile payments business for as much as it initially thought has affected PayPoint.

That said both companies are forecast to yield over 6% according to data from Stockopedia, with PayPoint augmenting its payout with special dividends amounting to around 57p per share on top of the ordinary dividend. That makes it my preferred, if less well known option.

The post Why PayPoint plc is a better power play than Centrica plc appeared first on The Motley Fool UK.

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Dave Sullivan has no position in any shares mentioned. The Motley Fool UK owns shares of PayPoint. The Motley Fool UK has recommended Centrica. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Calm before the storm?

However, there are a further 18 trading days to go before the UK goes to the polls in what could prove to be a significant moment in history for the UK and its citizens.

As an investor I’m less worried about what political mud is being slung by the remain or leave campaigns, both of which are working hard at rubbishing the other’s case. The truth is that time will tell how the country votes and whichever way that is could have an impact on my investments – especially if the vote takes the market by surprise.

A recent case in point is the 2015 General election. Those of us with long memories will remember that sectors such as housebuilders and energy suppliers were out of favour due to fears of a mansion tax and an energy price freeze. However, when the Conservatives won their majority, these sectors rallied as market fears subsided. So for me the chance of Brexit is still real, even though not likely given recent polls.

Getting defensive

While I’m not suggesting that investors sit on the sidelines with 100% of their portfolios in cash, I think that it’s prudent to diversify one’s portfolio with a selection of more defensive shares. In my view none are more defensive than utility companies Severn Trent (LSE: SVT), Pennon Group (LSE: PNN) and United Utilities (LSE: UU) all of which offer investors a bank-like home for their money – albeit with a little more volatility rewarded with a far higher yield.

This week all three of these businesses reported good progress during the first year of ‘AMP6’ the Asset Management Plan, a regulatory period that covers the sector and spans 2015 to 2020.

Investors should be comforted to know that unlike many other businesses, the water industry is regulated. While this makes it difficult for the companies in the sector to raise prices in order to improve profits, it does give these businesses a competitive advantage as nobody is going to take their business from them.Customers are customers for life, or at least until they move to a different area.

As we can see from the chart, the shares tend to outperform the blue chip index in times of uncertainty and when the market is volatile. Of course the opposite is true when investors are in ‘risk-on’ mode.

Secure income stream on tap

Despite the significant debt pile carried by each company they can continue to pay out, and indeed grow, the dividend year after year. And while that growth isn’t spectacular, it’s only heading in one direction – up.

Indeed, turning to the 10-year chart – despite the ups and downs of the market it may come as a surprise to some that all of these boring, low-growth dividend payers have beaten the market. That’s better than the average private investor who usually underperforms the market.  

The post Can Severn Trent plc, Pennon Group plc and United Utilities Group plc provide “Brexit shelter”? appeared first on The Motley Fool UK.

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Dave Sullivan has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Should I stay or should I go?

As an investor I’m less worried about political mud being slung by both sides as I see this as the everyday norm in UK politics with the only change being the subject matter.

No, I’m more focused on the impact the vote going either way could have on my investments. Now I should say from the off – I haven’t sold all of my investments with a view to buying back after 23 June – that could turn out to be folly. But I’m currently wary of certain shares that are economically sensitive and could sell-off in the event of a leave vote – or more to the point the fear of the impact that a vote for Brexit would have on the economy as a whole.

Now I’m no economist, nor am I about to offer my personal view as to which way I will be voting or try to sway readers either way – in my view the decision should be made with all of the information to hand. However, there’s no shortage of views wherever you look, and while some don’t stand up to scrutiny, there are, in my view some by respected organisations on both sides of the debate that should be considered further.

But what if?

One of the starkest warnings came from the treasury on Monday, which suggested leaving the EU would tip the UK into a year-long recession, with up to 820,000 jobs lost within two years. In response Boris Johnson dismissed the study as “more propaganda” from the remain side, which he claimed was “rattled“.

However, if we did vote leave and the recession came I think that it would be particularly bad for more domestically-focused banks such as Lloyds (LSE: LLOY).

You see, Lloyds is a geared play on the UK economy. As we’ve witnessed since the financial crisis and the near fatal acquisition of HBOS, the bank has been putting itself back on a firmer footing, returning to growth and even paying dividends, which are expected to grow quickly from here.

However, what if we do get the threatened recession? With consumer debt levels not far off those pre-financial crisis and house prices at record highs (partially driven by ultra-low interest rates and fairly easy access to credit), I can see Lloyds having to make higher provisions for bad debt, and writing down the value of property on its mortgage books as some customers will struggle to service their debt if the economy dips.

However, as we can see from the chart Mr Market seems to be predicting the voting public will choose to stay in Europe given the recent strong run-up of the shares over the last few trading days.

Despite the strong run, the shares still trade on a single-digit forecast P/E and are set to yield over 6% according to data from Stockopedia. And while there may be volatility going forward, especially if the polls are wrong, the shares are worthy of further research for those with a long-term view.

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Some of the most covered companies, as one would expect are part of the blue chip index, and few companies are covered (particularly of late given the ups and downs in the price of oil) as much as FTSE 100 oil and gas giants BP (LSE: BP) and Royal Dutch Shell (LSE: RDSB).

Opportunity knocks?

As we can see from the chart below, rather unsurprisingly, the shares have underperformed the wider market over the last 12 months as the price of oil spiralled downwards, hitting an apparent bottom with the price of Brent crude falling to sub-$28 a barrel at one point in January this year, its lowest since 2003.

However, since then the price has been edging up for some time, and for now seems to be settling under $50 per barrel of Brent crude as concerns around the oversupply in the market seemed to have eased, pushing the price of the black stuff upwards. However, whether it will breach $50 remains to be seen. Indeed, the last thing the market needs is refreshed concerns that the oversupply issue is returning as producers begin to bring mothballed operations back online.

Nonetheless, even if (like me) you weren’t brave enough to buy Royal Dutch Shell and BP in January at yields approaching 10%, given the higher oil price and the shares still being well off of their highs, perhaps now could be a good time to allocate part of your portfolio to include these shares.

And now for something completely different

Despite the possibility of the shares offering good value at these prices, and despite the price of oil seeming to stabilise, even if it is below $50, I felt that it was worth actually posing a question to myself: Should we simply buy both of these shares and just forget about them?

Now believe it or not, this rather simplistic approach is actually one of the hardest aspects of investing for investors to get right and is something that I’ve struggled with before. While trading can, in the short term save you some pain, all too often it will cost you dear as Mr Market plays with your emotions.

But in the case of Shell and BP, two companies that have been around the block a few times, this tactic should be easier – you see for years these companies have been operating through many booms and busts – paying dividends as they go along.

Indeed, Shell hasn’t cut its dividend since the Second World War, while BP has recovered from one of the most devastating deep-water accidents in recent times – an event that would have sunk most companies out there.

And currently, both shares yield in excess of 7%, meaning investors can sit back, relax and let the income roll in.

The post Why you should just buy and forget BP plc and Royal Dutch Shell plc appeared first on The Motley Fool UK.

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Dave Sullivan has no position in any shares mentioned. The Motley Fool UK has recommended BP and Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Of course, only some of that information is actually useful to investors, I am of course referring to the RNS, which everyone is interested in: trading updates and the six-monthly company results.

Out of fashion

For many investors, especially in the retail sector, results season has been a bit of a mixed bag with online retailers such as Boohoo.com and ASOS continuing to make progress, while FTSE 100 retailer Next (LSE: NXT) was anything other than bang on trend. The shares fell to lows not seen since October 2013 following a series of disappointing updates coupled with a very uncertain outlook statement from the CEO in March.

Indeed, the CEO remarked that 2016 could be as difficult as 2008 for the group as it struggles with lunch-stealing, capex-light online competitors, poor weather and some problems of its own making.

At the last trading update in May the sentiment was still cautious with management of the view that while unlikely, it was possible sales would deteriorate further. That said, it seems that the warmer weather has significantly improved sales as temperatures finally started to rise.

Despite this trend reversal, management felt that the recent poor performance may be indicative of weaker underlying demand for clothing and a potentially wider slowdown in consumer spending.

Given the uncertainty, Next prudently lowered the company’s full price sales guidance range to -3.5% to +3.5% for the year to January 2017.

More pain to come?

And this week we turn to high street stalwarts Marks & Spencer (LSE: MKS) and Dixons Carphone (LSE: DC), both of them due to release their numbers to the market this week.

As can be seen from the chart below, all the shares have underperformed the main index over the last 12 months. However, the trio of retailers has been picking up of late.

Yet the same can’t be said of analysts’ forecasts, which have been heading down over the last few months. This is more pronounced at M&S, which analysts now expect to report around 1 penny per share less in earnings for the year ending March 2016.

Analysts are less bearish about Dixons Carphone with forecasts shaved by just half a penny. Nevertheless, the general trend is down, perhaps due to a read-across from the challenging environment reported by Next.

Poised to surprise?

However, given all of the negativity surrounding retailers at the moment, any earnings surprise on the upside could well see the shares do very well on the day.

Just as we saw with Next at the start of May, even relatively downbeat news can have a positive impact on the shares once the market realises that it has become too negative on the company – and this could be the case with Dixons Carphone and M&S.

The post Will Marks and Spencer Group plc and Dixons Carphone plc buck the trend or head the same way as Next plc? appeared first on The Motley Fool UK.

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Dave Sullivan has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

While I agree that investors shouldn’t overpay for a share, be that a growth share, or any other for that matter, it can still pay us to buy into the growth that’s on offer, even if all of our instincts are telling us that the purchase no longer offers us value.

Anchoring on a price

Turning to the chart, let’s look at premium mixer producer Fevertree (LSE: FEVR). It has started another leg up with the shares rising as much as 20% yesterday on news that strong sales in the period-to-date means management anticipated results for the full year to December will be “materially ahead” of market expectations. 

I wonder how many of us would have thought that the shares had gotten away from us when they initially shot up back in July 2015? However, as we can see below, what actually happened was that the shares actually doubled from that point!

Obviously the question now is whether the shares still offer value, or has the risk/reward tilted out of our favour?

Well, before yesterday’s rise, the shares exchanged hands on a rather punch rating of nearly 40 times forecast earnings, according to data from Stockopedia. After the price rise, this will of course increase until analysts start to upgrade their forecasts, which will bring the PE back down a little. So on the face of it, now could be another buying opportunity as winning shares tend to keep on winning.

Having your cake and eating it

Another growth share that some investors will be kicking themselves for missing as they think the share price has risen too far is Patisserie Holdings (LSE: CAKE), the UK-based upmarket café and casual dining retail outfit.

There aren’t many good retail rollouts in my view, as some run out of steam and some find that their format just doesn’t connect with customers in other areas. However, in my view this is one of the best right now. It’s already highly profitable, generating a lot of cash, which is funding its rollout and enabling management to adopt a progressive dividend policy.

True, the shares currently trade on a September 2016 P/E of 26 times earnings, falling to 23 times in September 2017, however I would expect this to come down in time given the confidence management expressed at the interims on Wednesday.

A question of balance

While growth is good, and should form part of most investors’ portfolios, some of the most successful investors diversify their portfolios to include both growth and income stocks. With that in mind I’d be a holder of the more diversified beverage business Britvic (LSE: BVIC), which also announced results yesterday.

It’s true that the growth on offer here is small, indeed organic growth actually fell while reported growth only increased due to the recent acquisition in Brazil. However, management still saw fit to increase the interim dividend by 4.5%, well above inflation, while maintaining guidance for the full year.

And if you need any more proof that this stock should be included in your portfolio, just look at the performance over the last three years when compared to the FTSE 100. Need I say more?

The post Why I would buy growth stars Patisserie Holdings plc and Fevertree Drinks plc and Hold Britvic plc appeared first on The Motley Fool UK.

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Sometimes Mr Market can throw investors interesting opportunities. However, the question that most of us will ask is: when is the right time to buy?

The behavioural biases that surround this aspect of investing often defeats even the most experienced investors, as they try to wait for the best price. After all, everyone loves a bargain don’t they?

The sad truth, however, is that actually buying at the bottom is a feat achieved by a lucky few, just as selling at the top is more down to luck than judgement, despite what those with 20:20 hindsight would have you believe.

So with this in mind I’ve selected a trio of quality companies: FTSE 100 retailer Next (LSE: NXT); budget airline easyJet (LSE: EZJ) and terrestrial broadcaster ITV (LSE: ITV), all of which I believe offer long-term patient investors an opportunity for market-beating capital growth and market-beating income – especially given the share price falls of late.

As we can see from the chart, all three of these shares have underperformed recently, driven by short-term views about the company’s prospects going forward. However, I believe this gives investors an opportunity.

Let’s take a more detailed look at each one.

Out of fashion

The market hasn’t been kind to one of the UK’s best known retailers, Next.

Since the shares hit the December high of £80 each, the general direction has been down following a series of ill-received trading updates, which left the market selling the shares off to the charity shop.

A combination of too-warm and too-wet weather coupled with some missteps in the supply chain caused sales to slip and the shares with them to sub-£50 at the beginning of May.

And although the shares have recovered a little since, they’re well off their highs and priced on an undemanding forecast PE of 12 times earnings, which looks cheap for such a quality company to me and it would appear to management with Next continuing to buy back its shares.

Plane sailing

While investors are unlikely to see earnings growth like the last five years at easyJet, earnings are still heading in the right direction, despite the tragic events in Europe so far this year and the uncertainty they bring.

Indeed, at last week’s interim results the board was confident that passenger numbers, revenue and profit would grow, and as a result of the board’s confidence in the future success of the business, the annual dividend payout ratio will increase by a quarter to 50%

And with the shares trading on a single-digit forecast PE of 9 times earnings and expected to now yield 5%, I think that the market is missing a trick.

Time to tune into ITV?

Another poor performer with shares down by around 30% over the last 12 months is ITV. While it’s true that there’s less speculation about a possible takeover approach, I believe the shares on their own are a sound investment.

Despite concerns in advertising due to fears in relation to a possible Brexit vote in June, management is still expected to deliver double-digit growth in earnings with forecast earnings expected to grow by 20% to 17.5p per share, according to data from Stockopedia.

This places the shares on a 2016 PE of less than 12 times earnings and a near 5% yield before any further special dividends, which could see that yield double!

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Dave Sullivan owns shares in ITV. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.