interactive investor’s head of equity strategy Lee Wild had some great success in 2019; how will he fare in 2020?
A grim December 2018 brought to a close the worst year for stock market investors in a decade. A year later, the two big problems – US-China trade dispute and Brexit – remain, but greater optimism around both has fed the bulls ahead of the festive lull.
There has been a marked difference in regional performance, however. Russia shot the lights out in 2019 and US tech stocks bounced back, while other US indices reached record highs. Europe became everyone’s favourite contrarian play.
Brexit uncertainty hobbled the UK. In a list of major indices, only crisis-ridden Hong Kong did worse than the small-cap Aim All-Share index. The FTSE 100 failed to make new highs, with a 10% gain barely recouping losses suffered in the fourth quarter of 2018. Yet the FTSE 250 rose by 20%. Might resolving Brexit release a wall of money from corporations and investors, making domestic stocks the ones to own in 2020?
Despite underperformance by UK markets, I’m satisfied with my speculative growth tips for 2019, which returned an average of 41%. Car-testing equipment maker AB Dynamics (LSE:ABDP) excelled, making a 79% profit, while tech conglomerate Halma (LSE:HLMA) surged 52%. Fevertree (LSE:FEVR) remains impressive, although nervousness about its pace of growth had its shares down 9%.
My dividend recommendations did a job: British American Tobacco (LSE:BATS) yielded 7.3% for the year and returned an 11% capital gain, and doorstep lender Morses Club (LSE:MCL) yielded 5.8%, although its shares fell by 4%. Vodafone (LSE:VOD) disappointed with a 40% cut to its payout, yet still yielded 4.5%.
In 2020 there will be lots more chat about the strategic shift from expensive growth stocks to value shares. Resolving both trade wars and Brexit could trigger a further ‘melt-up’ for global stock markets, but investors must be vigilant for signs that growth has peaked. This year’s growth tips are good companies I would like to own long-term, irrespective of price.
Gamma Communications (GAMA)
Share price 1,262p; p/e ratio 31.9; dividend yield 0.8%
In today’s connected world, companies need desk phones, mobiles, broadband and data. These systems are difficult and time-consuming for them to put in place on their own, so an increasing number of them are paying Gamma Communications (LSE:GAMA) to do this for them. The firm should maintain double-digit growth for the foreseeable future by growing its cloud product suite and increasing the already high percentage of recurring revenue it earns.
Team17 Group (TM17)
Share price 316p; p/e ratio 30.3; dividend yield 0.0%
Video games developer Team17 (LSE:TM17) excels in an industry tipped to be worth $300 billion (£231 billion) by 2025. It already expects to make more than forecast in 2019, and it has a long list of new games to be released. Iconic titles such as Worms, Overcooked, and The Escapists should also keep the money rolling in through 2020 and beyond. A placing by Lloyds Bank’s private equity division was increased to six million shares due to “strong investor demand”.
Share price 3,095p; p/e ratio 26.6; dividend yield 2.0%
4imprint (LSE:FOUR) is a promotional products direct marketer. It supplies pens, bags and drinks flasks emblazoned with company logos to businesses, mostly in the US but also in the UK and Europe. It expects revenue growth of 16% in 2019, and City forecasts are for profit growth of 17% in the year and more than 14% in 2020. The valuation multiple reflects a lot of potential, but the company is well-placed to keep growing its market share.
Share price 78.5p; p/e ratio 11.0; dividend yield 6.4%
Picking ‘speculative’ income stocks implies risk, something in abundance at Centrica (LSE:CNA). It has been haemorrhaging customers at its British Gas arm, it has cut its dividend and its share price has crashed, but its appointment of a new chief executive in 2020 and turnaround potential make its yield worth considering. Identifying an extra £150 million of savings is good for Centrica’s cash-flow, and asset disposals are planned.
Direct Line Insurance (DLG)
Share price 297p; p/e ratio 10.8; dividend yield 8.6%
Insurer Direct Line (LSE:DLG) has at least compensated long-suffering investors with a generous dividend. Now, with its share price near a five-year low and declining premiums and policy count stabilising, its prospects have improved. New technology should help it grow revenue and increase margins, under-pinning share buybacks and the dividend.
Duke Royalty (DUKE)
Share price 47.3p; p/e ratio 14.2; dividend yield 6.4%
Duke Royalty (LSE:DUKE) shares have been range-bound between 35p and 50p for four years. But you get a steady income stream, paid for by a percentage of revenues it receives from companies it has lent money to. Duke is a market leader in UK royalty finance, and long-term predictable cash flows should help it navigate economic headwinds. A recent £20 million fundraising at 44p a share provides cash to pursue growth.
Note: Performance data SharePad, as at 4 December 2019.
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Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.