We asked our analysts to share their top stock picks for the coming month (the first five picks can be found here).
G A Chester: Next
The great thing about retailer Next (LSE: NXT) — aside from its perennial popularity with shoppers — is the veteran management teams’s relentless focus on cash generation and delivering value for shareholders.
Over the past 15 years, the company has not only increased its dividend from 22p a share to 153p a share (with generous special dividends on top), but also bought-back more than half of its own shares. Investors have been rewarded with a tremendous return.
Management is adept at forecasting surplus cash from operations for each year ahead, and identifies a share price below which it sees buying back shares as the value option and above which distributing special dividends makes more sense.
Effectively, we have a guide to the price at which the shares might be a good-value buy. The current limit is 6,962p. The shares are trading at 6,775p. Bob’s-yer-uncle!
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G A Chester has no position in Next.
Ian Pierce: Petrofac
Crude prices may not rebound to $100/bbl anytime soon, if ever, but oil services provider Petrofac is well placed to reward shareholders even at current prices. Earnings fell precipitously in 2015 due to a disastrous foray into offshore platforms but the core business remains solidly profitable.
The company’s main customers, large Middle Eastern national oil companies, are continuing to pump the black stuff from their ageing wells at record levels. Petrofac has ridden this wave and increased revenue by 10% last year while growing its order book to a record $20.7bn.
Furthermore, Petrofac’s balance sheet is in very good health. Net debt actually decreased over the past year and the company continues to pay a 6% yielding dividend. Trading at 10 times forward earnings, Petrofac is relatively cheap, offers a solid dividend and should rebound nicely as crude prices move upwards.
Ian Pierce has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Petrofac.
Dave Sullivan: Tristel
Tristel (LSE: TSTL) is a UK-based manufacturer of infection prevention and contamination control products. The company operates through three segments: Human Healthcare, Animal Healthcare and Contamination Control.
The shares fell out of bed when the company announced its interim results on Wednesday last week, diving by more than 25% on the day, and further still the following day before recovering some ground to finish the week down by 20%
The fall in the share price was due in the main to a £1m share-based charge, taking investors by surprise.
However, at a recent investor presentation, management confirmed expectations for 2016 and 2017, none of which factor-in any expansion into the US market or any potential move into the public market.
The shares aren’t cheap, trading at over 20 times forecast earnings with a yield of around 2.5%. However, on a three-to-five-year basis the shares could represent a bargain at today’s prices.
Dave Sullivan owns shares in Tristel.
