We asked our freelance writers to share their top stock picks for the year ahead, and this is what they had to say:
Ian Pierce: B&M
Data is telling us that domestic consumer confidence is shot and traditional brick and mortar retailers are going the way of landline telephones, but that isn’t stopping me from backing discounter B&M (LSE: BME) in 2018 and beyond.
With enticingly low prices on brand name foodstuff and off-brand goods, B&M is growing rapidly by opening new outlets (from its current 522 it sees room for 950 in the UK) and increasing like-for-like sales (up a full 7.5% in H1 2018).
Add in expansion prospects for its Jawoll brand in Germany and Heron Foods in the UK, attractive EBITDA margins of 8.6% and a great management team and I see plenty to love.
Ian Pierce does not own shares of B&M.
Roland Head: Centrica
I believe utility and energy group Centrica (LSE: CNA) is one of the top turnaround opportunities for 2018. In my view, the risk of tougher regulation is probably overstated. Despite falling customer numbers, I expect British Gas to retain its status as the UK’s largest energy supplier.
A second attraction is that Centrica should be well positioned to benefit from rising oil prices, through its stake in the Spirit Energy joint venture. Management have indicated their support for the the 8% dividend yield and earnings are expected to return to growth this year. The shares look cheap to me at current levels.
Roland Head owns shares of Centrica.
Edward Sheldon: Legal & General Group
My top stock for 2018 is Legal & General (LSE: LGEN). Here’s why:
The company released an upbeat trading statement in December, stating that it was seeing “great momentum” across all its businesses and that it remains “strategically well placed to deliver strong, attractive growth and returns” in its core markets.
Yet this momentum does not seem to be reflected in the valuation. On a P/E ratio of just 10.8, the shares look cheap. Furthermore, the insurer’s dividend prospects look extremely enticing. A payout of 15.2p per share is expected for FY2017, a yield of 5.6% at the current share price.
The shares have been range bound for several years now, while the dividend has been increased significantly. For this reason, I believe it’s only a matter of time until they move higher.
Edward Sheldon owns shares in Legal & General Group.
Kevin Godbold: Just Eat
I’ve previously owned up to being nervous about the high valuation the market is placing on Just Eat (LSE: JE), the global marketplace provider for online food delivery. However, I’ve since realised that home-delivered takeaway food is a way of life for many, and that trend looks set to fuel the firm’s profit growth figures in 2018 and beyond.
The recent move to the FTSE 100 and the company’s imminent takeover of competitor Hungryhouse encourage me to believe that the stock will do well this year, even with a forward P/E ratio running above 30. Meanwhile, City analysts expect earnings to grow around 41% during 2018, which looks like robust ongoing growth.
Kevin Godbold does not own shares in Just Eat.
G A Chester: Polymetal International
I’m generally keen on gold mining stocks for 2018, as I see geopolitical tensions and other catalysts for investors to seek the relative safety of gold. I’d buy mid-cap Polymetal International (LSE: POLY) as a good risk-reward compromise between FTSE 100 giant Randgold Resources and speculative junior miners.
The company is well established in the Russian Federation, having been founded in 1998. It’s forecast to increase earnings by 18% this year, giving an undemanding P/E of 11 and an attractive PEG ratio of 0.6 (the PEG ‘fair value’ marker being one). There’s also a generous prospective dividend yield of 4.6%.
G A Chester has no position in Polymetal International or Randgold Resources.
Bilaal Mohamed: Porvair
My top stock for 2018 is specialist filtration and environmental technologies group Porvair (LSE: PRV). The Norfolk-based company develops, designs, and manufactures specialist filtration and separation equipment, serving a range of market segments including aviation, energy and industrial process, laboratory supplies and molten metals.
Porvair’s strong track record of growth means the shares don’t come cheap at 24 times current year earnings, perhaps reflecting the market’s bullish long-term view on the stock. Nevertheless, I believe a buying opportunity has presented itself after a strong share price correction in recent months. I reckon this high-growth stock could be set for spectacular returns in 2018, and beyond.
Bilaal has no position in Porvair.
Paul Summers: Ramsdens Holdings
At the risk of sounding like a stuck record, my top pick for 2018 is a stock I praised quite a bit in 2017: pawnbroker, jewellery retailer and currency specialist Ramsdens Holdings (LSE: RFX).
November’s hugely encouraging interim numbers showed “continued strong growth” in its various divisions. Revenue rose 18% to £21.8m with pre-tax profit soaring 63% to £5.2m.
Beyond recent results, I also see Ramsdens as a defensive play in a rather expensive market. Trading on just 12 times earnings, the stock is still attractively priced and comes with a 3.3% yield. Should Bitcoin crash and investors seek the relative safety of assets like gold, I can see the company having another solid year.
Paul Summers owns shares in Ramsdens Holdings
Peter Stephens: Randgold Resources Limited
This year may prove to be a more difficult year for share prices. Global political risks remain high, which is why buying a gold miner such as Randgold Resources (LSE: RRS) could be a shrewd move. It could offer defensive characteristics if investors flock to perceived safer assets such as gold, while also offering high growth potential.
For example, Randgold is forecast to record a rise in earnings of 24% this year, and yet it has a PEG ratio of just 1. A dividend yield of 2.9% is growing rapidly thanks to the company’s strong net cash position, and this could prove useful if inflation moves higher.
Peter Stephens owns shares in Randgold Resources
Rupert Hargreaves: RPC Group
2017 turned out to be a mixed year for RPC Group (LSE: RPC). For the six months to September, adjusted operating profit grew 58% with adjusted earnings up 27%. However, despite this growth, investors are worried about RPC’s rising debt. Net debt has more than doubled to £1.1bn in the past two years.
These concerns have sent shares in RPC down 20% over the past 12 months but I believe that this decline is overdone. RPC is highly cash generative with free cash flow in the first half of £170m, giving management plenty of headroom to reduce debt. What’s more, recent declines mean that the stock is now trading at a forward P/E of only 12.3, below the five-year average of 13.4.
Rupert does not own shares in RPC Group.
Royston Wild: Taylor Wimpey
Share prices across the housebuilding sector boomed in 2017 as predictions of a collapse in property values failed to materialise. Taylor Wimpey (LSE: TW), for instance, saw its market value jump 34% last year.
And I expect the Footsie firm to keep on thriving. Amid a lack of adequate housing supply, and buoyant buyer appetite being supported by favourable mortgage rates and government initiatives like stamp duty cuts and Help to Buy, there remains little reason to expect sales at Taylor Wimpey to slow down.
Earnings at the Footsie business are predicted to rise 10% in 2018, creating a bargain forward P/E ratio of 9.8 times. And with the business also carrying a monster dividend yield of 7.3%, the stage is set for the share to remain well-bought this year.
Royston Wild owns shares in Taylor Wimpey.
Those are our freelance writers' tips for 2018, but what about our analysts on the Fool's premium services? Well, between them they have highlighted five shares in the FTSE 100 in our special free report "5 Shares To Retire On". To find out the names of the shares and the reasons behind their inclusion, simply click here to view it immediately with no obligations whatsoever!
The Motley Fool UK has recommended Just Eat and RPC Group. 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.