We asked our writers to share their top stock picks for the month of March, and this is what they had to say:
Rupert Hargreaves: FirstGroup
FirstGroup (LSE: FGP) has struggled to win support from investors over the past 12 months. After topping out at 151p in May last year, shares in the transport operator have since crumbled to 95p, a decline of 37% excluding dividends. These declines have left the shares trading at a depressed valuation of just 6.7 times forward earnings, and an EV/EBITDA ratio of 3.4. For some comparison, the rest of the market is trading at a median P/E of 14 and EV/EBITDA ratio of 11.7.
Providing public transport isn’t a glamorous business, but it is essential, and that’s why I believe the shares offer value at current levels. And FirstGroup’s directors seem to agree. Over the past six months, directors have spent £150,000 increasing their stakes in the business.
Rupert does not own shares in FirstGroup.
Royston Wild: BBA Aviation
Recent share price weakness at BBA Aviation (LSE: BBA) represents a fresh buying opportunity in my opinion, particularly as upcoming trading details — full-year financials are set for 1 March — could send the FTSE 250 business flying again.
Back in November the aircraft services play announced that revenues rose 10.2% during January-October, signalling an acceleration in activity in recent months.
City brokers are forecasting earnings growth of 26% for 2017, and for extra rises — of 10% and 8% — in 2018 and 2019. Sure, BBA Aviation may carry a slight premium, the firm dealing on a forward P/E ratio of 18 times. But this is a small price to pay for the possibility of strong and sustained profits growth as market conditions improve.
Royston Wild does not own shares in BBA Aviation.
Paul Summers: ImmuPharma
Readers with a high tolerance for capital risk and share price volatility might want to take a closer look at AIM-listed, drug discovery firm ImmuPharma (LSE: IMM). Although absolutely nothing can be guaranteed, there’s potential for the small-cap’s stock to re-rate significantly over the next month as it releases top-line results on its pivotal Phase 3 study into the efficacy of Lupuzor — a treatment developed to tackle Lupus.
While the double-blind nature of the trial means that no one knows in advance what the outcome will be, the fact that the company observed a robust safety profile throughout testing is encouraging, as was the recent announcement that patients had actually asked to keep taking the treatment for a further six months.
With a potential blockbuster on its books, I’m keeping a tight grip on my shares during March.
Paul Summers owns shares in ImmuPharma
Peter Stephens: Royal Bank of Scotland Group
After reporting its first bottom line profit in ten years, the outlook for RBS (LSE: RBS) seems to be much brighter. Its performance continues to be relatively strong on an underlying basis and, while legacy issues remain, its long-term growth potential seems to be high.
Over the next two years, it is forecast to grow earnings by 3% and 11%. Despite an improving growth rate, it has a forward P/E of under 10, which suggests that it may be undervalued. A forward dividend yield of 5.6% could act as a positive catalyst on its share price, while also providing inflation-beating returns for its investors.
Peter Stephens owns shares in RBS
Ian Pierce: Equiniti
This month I’m looking at Equiniti (LSE: EQN). The company performs a variety of critically important but non-core services such as share registration, pension administration and risk management software for 70% of the FTSE 100.
These services bring high levels of recurring revenue, high and rising margins, and numerous opportunities for organic growth through cross-selling existing customers.
And in a very exciting move, Equiniti is now expanding into the US, the world’s largest financial market, through its recently-completed acquisition of Wells Fargo’s share registration business.
With growth at home continuing steadily and potential in the US, I think Equiniti’s valuation of 17 times consensus 2018 earnings is very attractive.
Ian Pierce has no position in any of the shares mentioned.
Bilaal Mohamed: DS Smith
My top stock for March is FTSE 100 packaging giant DS Smith (LSE: SMDS). The £5.2bn business is now a leading provider of corrugated packaging in Europe, and a specialist in plastic packaging worldwide.
The London-based group boasts an excellent track record of sales and earnings growth, and with the explosion in online shopping helping to further increase demand for cardboard packaging, I think the only way is up for this boring-yet-reliable international business.
Following the recent market correction the shares now trade on a fairly modest price-to-earnings ratio of 14 and offer a very respectable dividend yield of 3.4%.
Bilaal has no position in DS Smith.
Roland Head: Superdry
Is fashion group Superdry (LSE: SDRY) on sale? The stock’s recent pullback has applied a 15% discount to January’s all-time high of 2,102p. But I can see no reason to believe that this share price fall suggests a change in the positive outlook for this excellent growth business.
Indeed, broker forecasts for 2018 earnings have notched higher in February — the fifth consecutive month of upgraded earnings estimates.
Earnings are expected to rise by 14% during the year to 29 April and by 18% in 2018/19. This gives the shares a price/earnings growth (PEG) ratio of just 1.1. That looks cheap to me.
Roland Head has no position in Superdry.
Kevin Godbold: The Sage Group
Integrated accounting, payroll and payments solutions provider The Sage Group (LSE: SGE) suffered a perfect storm in January when the first-quarter report warned of delays in some revenues due to increased sales training. At the same time, the chief executive and the chief finance officer sold some of their personal shares. That all coincided with the recent general market correction. The stock plummeted as much as 18% by early February.
But I think the firm’s long record of consistent cash flow, earnings and dividend growth will continue to drive the stock forward during March and beyond. It’s a defensive business and has lost none of its attraction just because the valuation is keener.
Kevin Godbold owns shares in The Sage Group.
G A Chester: Imperial Brands
Market sentiment has turned against tobacco group Imperial Brands (LSE: IMB) with a vengeance. The shares are trading at a level not seen since 2014. The forward 12-month P/E is in bargain-basement territory at under 10 and the prospective dividend yield is around 7.5%.
I believe the market’s concerns about future growth are overdone. Furthermore, the share price has become so depressed that the potential has increased for a takeover bid from a rival, a buyout by private equity or other corporate activity that could rapidly reward shareholders with a premium return. As such, I rate the stock a ‘buy’.
G A Chester has no position in Imperial Brands.
The Motley Fool UK owns shares of and has recommended BBA Aviation. The Motley Fool UK owns shares of Equiniti. The Motley Fool UK has recommended DS Smith, Imperial Brands, Sage Group, and Superdry. 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.