I’ve been hunting around for exciting opportunities to add to my Stocks and Shares ISA in the year ahead. A couple have really caught my eye.
They were highlighted by AJ Bell investment director Russ Mould. He reckons there’s plenty of value to be found on the FTSE All-Share today, a view I share. While the index climbed just 6% in 2023, Mould notes that this “gain is supplemented by a dividend yield north of 3.5%, share buybacks and also mergers and acquisitions”.
This lifts the total cash return into double digits, which “beats inflation, government bond yields and returns on cash”.
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I like these two
Mould defines his first pick as a cautious one, FTSE 100 pharmaceutical stock GSK (LSE: GSK). I’m intrigued, because I stuck it on my buy list earlier this month.
He says a major overhaul of the group structure, four profit forecast upgrades in two years and a promising drug development pipeline still haven’t boosted GSK’s shares. They trade at 1,456p, roughly where they started 2023.
The combination of increased forecasts and a static share price makes GSK look good value in absolute terms. It’s also nicely priced relative both to its own growth targets and rival pharmaceutical stocks.
The group is now focused purely on the development and sale of medicines and vaccines. It should therefore benefit from long-term demographic trends such as population growth and increased longevity, he adds.
Mould warns that GSK does face a raft of lawsuits that allege there’s a link between the heartburn drug ranitidine (better known as Zantac) and cancer. But he reckons that’s priced into today’s low valuation of just 10.38 times earnings. Today’s 4.21% yield is solid rather than spectacular. However, I don’t own any pharma stocks and I’m keen to buy this one.
Riskier but more rewarding
For more adventurous investors, Mould highlights specialist emerging markets fund manager Ashmore Group (LSE: ASHM). It endured a bumpy 2023, with the shares falling 5.76% over the year, despite rebounding 24.9% in the last month.
Last year was another tough one for emerging markets while the biggest of all, China, faced — and faces — serious problems. Mould argues that this underperformance “may be enough to persuade contrarian and risk-tolerant investors to do some more research on this FTSE 250 stock”.
Unloved can mean undervalued and Ashmore’s 16.9p dividend per share looks well backed and equates to an 8% yield. It’s still risky though, and Ashmore upset many investors in September by rebalancing its bonus payout ratio in favour of staff and against shareholders. That’s a strange priority in a tough year.
Mould doesn’t expect a Chinese collapse. He notes that emerging market countries including Peru, Hungary, Paraguay, Chile and Poland are set to cut rates. A weaker US dollar could also lift the sector, by reducing the burden of their dollar-denominated debts.
I fell out of love with emerging markets some years ago, and remain wary today. Yet I’m now very much under-represented in the sector, and Ashmore could be an exciting way to put that right. I’m tempted to buy it in January. Call me boring but I’ll purchase GSK first.
