The Motley Fool

Top shares for December

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

Robert Faulkner: International Consolidated Airlines Group

Aviation may be a risky industry but I think it’s nearly time for shares of British Airways owner International Consolidated Airlines Group (LSE:IAG) to take off. Its share price hit some turbulence in October but has bounced back strongly, which is a sign of strength in a weak market.

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The airline conglomerate has been buying back its shares, which looks like a good move as market sentiment seems to be changing course. Airline stocks have underperformed the market by 22% this year, making their shares look very cheap, and analysts have announced IAG has headed into undervalued territory.

Robert Faulkner does not own shares in International Consolidated Airlines Group.

Rupert Hargreaves: Pearson

Pearson (LSE: PSON) is one of the largest distributors of educational products in the world. However, during the past few years, it has been struggling to compete with online competitors.

But now it looks as if management has managed to put the group back on a stable growth footing. The City is expecting earnings per share (EPS) to expand 37% in 2018, the first substantial growth reported since 2012. 

This bodes well for income investors. Pearson used to be one of the market’s top income stocks but was forced to slash its dividend in 2016. Now earnings growth is picking up, I expect the dividend to start expanding as well. The payout of 19.4p per share is covered three times by EPS, leaving plenty of room for flexibility.

Rupert Hargreaves does not own shares in Pearson.

Roland Head: Greene King

Recent news from Greene King (LSE: GNK) suggests the outlook could be improving for this FTSE 250 pub group. Like-for-like sales rose by 2.8% over the 18 weeks to 2 September, ahead of the 1.2% increase seen across the pub market.

Although beer sales received a boost from the World Cup, I’m encouraged by this market-beating performance. Cost savings of £45-£50m and the sale of at least 100 pubs this year should also help to boost profits and cut debt.

Trading on 8 times forecast earnings and with a 6.5% dividend yield, Greene King looks cheap to me. I think this could be a good time to buy.

Roland Head does not own shares of Greene King.

Paul Summers: National Grid

With markets likely to remain volatile, I wouldn’t blame investors from adding a few defensive stocks to their portfolios at the current time.

For me, one company that always has appeal is power provider National Grid (LSE: NG). In addition to being reasonably priced at 14 times earnings, the Grid’s shares come with a 5.8% dividend yield based on their price at the time of writing. That’s far better than the 1.4% available from the best Cash ISA (which is still less than inflation).

Yes, the shares are unlikely to rocket as heavily sold-off growth stocks would in the event of a Santa Rally, but I think this is a price worth paying for a little security as we approach our EU departure.

Paul Summers has no position in National Grid

Peter Stephens: Tesco

While the outlook for the UK retail sector may be uncertain, Tesco (LSE: TSCO) is forecast to post double-digit earnings growth in the next two financial years. Its focus on efficiency, improved product quality and a rationalisation of its operations in order to focus on core areas could catalyse its sales growth and margins over the medium term.

With a PEG ratio of around 0.8, the stock seems to offer a wide margin of safety. Although it faces increasing competition from rivals, it appears to have found a sustainable growth strategy for the long term.

Peter Stephens owns shares in Tesco.

G A Chester: BAE Systems

The share price of defence giant BAE Systems (LSE: BA) has languished at a depressed level since the market sell-off in October. Now at a 25% discount to its summer high, I view this as a great opportunity to buy into a world-class business in a sector I think is attractive for long-term investors.

We may be entering the traditional season of peace and goodwill, but the reality of the world means it’s hard to envisage there’ll ever come a time when demand for BAE’s products will cease. And with an undemanding earnings multiple of 12 and a 4.5% dividend yield, its shares look a gift to me.

G A Chester has no position in BAE Systems.

Kevin Godbold: Greene King

I think the FTSE 250’s Greene King (LSE: GNK) looks poised to perform well in December, as it benefits from what looks like an unfolding investor rotation back to value.

The pub operator and brewer owns brands such as Hungry Horse, Chef & Brewer, Flaming Grill, Farmhouse Inns and the Greene King locals estate. The firm has been trading well, as well as nipping and tucking its business with the aim of becoming a more streamlined and efficient organisation”. I think it will succeed.

Meanwhile, the company sports a low valuation multiple and a high dividend yield. It’s cracking value in my opinion.

Kevin Godbold does not own shares in Greene King.

Royston Wild: Ferguson

FTSE 100 giant Ferguson (LSE: FERG) is a share I would happily buy in the wake of heavy share price weakness.

The plumbing and heating specialist’s share price has steadied more recently, but the waves of selling that hit the business at the start of October means that it’s dealing at a whopping 25% discount to the levels recorded around then.

The fact of the matter is that Ferguson continues to make stunning progress in the US in particular, as evidenced by its excellent trading statement of last month.  And I’m certain that first-quarter financials released on Tuesday, December 4 should be impressive as well.

Ferguson’s stock price is ripe for a comeback, and its cheap forward P/E ratio of 12.2 times provides the base for this to happen.

Royston Wild does not own shares in Ferguson.

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The Motley Fool UK has recommended Tesco. 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.