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Top shares for May

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We asked our writers to share their top stock picks for the month of May, and this is what they had to say:

Royston Wild: Smith & Nephew

As Smith & Nephew (LSE: SN) gets ready to release first-quarter trading numbers (currently slated for Thursday, May 3), I reckon now could be a sage time to pile in.

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Demand for its artificial limbs and joints from emerging markets is moving back in the right direction, and sales to these regions improved by double digit percentages in 2017 compared to flatlining sales growth the prior year. I reckon signs of further progression in next month’s trading statement could prompt a fresh flurry of buying activity.

City analysts are currently forecasting earnings growth of 4% and 8% in 2018 and 2019 respectively. A subsequent forward P/E ratio of 19.5 times represents decent value given Smith & Nephew’s exceptional long-term profits prospects. 

Royston Wild does not own shares in Smith & Nephew.

Harvey Jones: British American Tobacco

British American Tobacco (LSE: BATS) is the single best performing stock on the index this millennium, with a total return of just over 1,000% since 31 December 1999. Yet today the dividend income and growth machine is in the doldrums, its share price falling 29% over the past 12 months.

This is primarily due to sterling’s recovery undercutting overseas revenues, and a rotation out of dividend stocks as interest rates rise, rather than something fundamental. 

Trading on a forward valuation of just 12.2 times earnings, a rare low, British American Tobacco looks a bargain. The forward dividend yield is 5.5%, covered 1.5 times. Earnings per share growth forecasts look positive for 2018 and 2019. Smoking may be in decline but this stock has plenty to offer.

Harvey does not own shares in British American Tobacco

Ian Pierce: Devro

My top stock pick this month is artificial sausage casing manufacturer Devro (LSE: DVO). The company is just emerging from a big two-year investment programme that saw it move into two new, purpose-built factories in the US and China.

This programme ran over cost, but with both factories now up and running Devro looks well-positioned to drive sales and margin increases from more efficient manufacturing processes, the ability to move up-market in places such as China, and general market growth. With high cash flow, growth potential and a 3.8% dividend yield, I think Devro is a bargain at its current valuation of 15 times forward earnings.

Ian Pierce has no position in any of the shares mentioned. 

Edward Sheldon: St James’s Place

I believe that shares in wealth manager St James’s Place (LSE: STJ) look quite appealing at present. The stock isn’t particularly cheap on a forward P/E ratio of 24, yet with the share price over 10% below its 52-week high, the prospective dividend yield of 4.2% on offer right now looks attractive.

Recent FY2017 results were strong, with gross inflows up 29% and group funds under management climbing 20%. The group stated that due to the ongoing complexities of pensions, tax and low-interest rates, the demand for trusted face-to-face advice has “never been greater”. With that in mind, I believe the firm’s prospects look good.

Edward Sheldon owns shares in St James’s Place.

Rupert Hargreaves: Persimmon

In my opinion, Persimmon (LSE: PSN) is one of the best income stocks investors can buy today. I believe it will continue to outperform even though the UK housing market is starting to weaken. Indeed, last year the company booked an operating profit margin of 28.2%, leaving plenty of headroom if selling prices start to fall and costs rise. 

Put simply, it looks to me as if this dividend champion will be able to meet its goal of returning around 30% of its current market capitalisation to shareholders via dividends over the next few years. With a dividend yield of 7.7% today, I reckon this is one stock that should feature in every income investors’ portfolio. 

Rupert does not own shares in Persimmon. 

Kevin Godbold: SSE

Earnings weakened recently at gas and electricity utility company SSE (LSE: SSE) and the share price started sliding around one-and-a-half-years ago, joining in the sell-off of defensive firms we’ve seen across the London stock market. But the valuation now looks compelling.

At the recent share price of 1,328p, the forward P/E rating runs just under 11 for the trading year to March 2020 and the forward dividend yield sits just above 7.3%. The stock has been creeping back up since mid-February and I think that move looks set to continue through May and beyond.

Kevin owns shares in SSE.

Paul Summers: Begbies Traynor

If you’re bearish on prospects for the UK economy then small-cap insolvency specialist Begbies Traynor (LSE: BEG) is definitely worth a closer look.

According to the latest Red Flag Alert issued by the company towards the end of last month, more than 477,000 UK businesses were in “significant distress” at the end of Q1. That’s a rise of 33% since the Brexit process was formerly triggered in March 2017.

Taking into account fragile consumer confidence, a flagging housing market and the prospect of further interest rates rises and I think Begbies could see a significant growth in business going forward. The valuation of 19 times forecast earnings is a little punchy but there’s a 3.5% yield to compensate.

Paul Summers owns shares in Begbies Traynor

Roland Head: Evraz

FTSE 100 coal and steel group Evraz (LSE: EVR) is expected to provide shareholders with a 9.4% dividend yield in 2018.

Forecasts indicate that this generous cash payout is expected to be covered 1.8 times by the group’s earnings. And my reading of past years’ accounts suggest that the dividend should also be covered by genuine surplus free cash flow.

Evraz’s Russian origins probably do add political risk to the shares. But unlike many Russian firms, it has significant operations in the US and Canada. Trading on a forecast P/E of 5.9 and with that prospective yield of 9.4%, I believe the stock is worth considering.

Roland Head does not own shares of Evraz.

Peter Stephens: Taylor Wimpey

The recent update from Taylor Wimpey (LSE: TW) showed that the housebuilding industry continues to experience buoyant trading conditions. Low interest rates have made borrowing increasingly accessible. With a loose monetary policy set to remain in place over the medium term, demand for new houses may remain high.

With Taylor Wimpey having a P/E ratio of around 10, it appears to offer a wide margin of safety. Given its generous capital return plan and a continued focus on customer satisfaction and efficiency, the company could prove to be a strong performer in future years – even with Brexit now on the horizon.

Peter Stephens owns shares in Taylor Wimpey

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The Motley Fool UK owns shares of and has recommended Devro. 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.

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