Interactive Investor

Six speculative UK share tips: a rally, 10% yields and two takeovers

6th July 2021 09:34

Lee Wild from interactive investor

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These share picks have generated plenty of drama during the first half of 2021, but all of them have done exactly what they were chosen to do.

A lot has happened since I picked my six stocks for 2021. There’s a new president in the White House, a mass global vaccination programme has been rolled out and economies are able to plan a return to normality.

That’s been good news for stock markets which have begun to price in a lot of good news. Many overseas markets are already trading way above levels they were at before the pandemic took hold in March 2020. But not all. The UK, which has also had to contend with a messy Brexit, has lagged international peers.

There are, however, signs that investors are becoming more comfortable buying UK-listed stocks, and our main indices are slowly catching up.

And that’s evident in the performance of the three speculative growth and three speculative income stocks I picked back in January. The six tips are up an average of 14.9% between 15 January and 30 June. To beat that, you’d have had to travel to France, where the stock market was up 16.5%. America’s broader S&P 500 index and tech-heavy Nasdaq couldn’t match it, up 14% and 13.7% respectively.

But only four of my six stocks made it to the second half of 2021. That’s because UK assets are so attractively priced, and money is still so cheap to borrow, that two of my speculative growth picks had received takeover bids from the US just three months into the new year.

Speculative growth 

Scapa, a supplier of adhesives to industry and the medical sector, received a bid from Schweitzer-Mauduit International (NYSE:SWM) just two weeks after my tip. An initial offer of 210p per share was 14% above my entry price, but an increased offer of 215p generated a profit of 16.8%.

Then, toward the end of March, US casino owner Bally’s said it would pay £2 billion in cash for online gambling company Gamesys (LSE:GYS). That priced shares in the owner of Jackpotjoy and a host of other online bingo and casino sites at 1,850p each, almost 42% more than my tip price.

That leaves just one of my speculative growth tips – Ideagen (LSE:IDEA). Tipped at 268p, the share price has topped 300p on a couple of occasions but is currently up just 1%. The company, which supplies regulatory and compliance solutions to companies within highly regulated industries, has also spent some of its £49 million war chest with the acquisition of a US business in March.

  Share price (p) Share price 30 June 2021 (p) +/- price change (%)
Speculative growth      
Gamesys (LSE:GYS) 1,304 1,844 41
Ideagen (LSE:IDEA) 268 269 1
Scapa Group 184 215 17

 

Speculative income

     
Diversified Gas & Oil
(Diversified Energy Co (LSE:DEC))
112 105.2 -6
AEW UK REIT (LSE:AEWU) 79.2 96 21
M&G (LSE:MNG) 199 228.9 15
      14.9

Speculative income

Picking income stocks during a pandemic lockdown was speculative indeed, but my faith in this trio has been repaid.

At 79.2p in January and offering a prospective dividend yield of 10%, AEW UK REIT (LSE:AEWU), which owns a diversified portfolio of regional UK commercial property assets, seemed like a no-brainer. In April, the company confirmed a recovery in the commercial property sector with an increase in net asset value (NAV) to 99.15p from 95.87p three months earlier. At 96p, my tip is up 21%. Crucially, the trust also announced another quarterly dividend of 2p a share.

AEW put its success down to strength in its portfolio of industrial properties, which saw a like-for-like valuation increase of 5.78%.

Portfolio manager Alex Short said: “Changing consumer habits and the resulting improved sentiment towards the industrial sector have been accelerated somewhat by the pandemic and, as the general economic outlook begins to improve with the effective roll-out of vaccines and the easing of lockdown measures, we are beginning to see this reflected in valuations.”

Insurer and asset manager M&G (LSE:MNG) has also done well for us, up 15% on our 199p entry price. And income seekers will be happy too, after the company confirmed it would pay a dividend of 12.23p. Many thought M&G would scrap the dividend or, at the very least, make a sizeable cut. Even if it had rebased the dividend by 30%, the shares would still have yielded over 6%, which made this investment choice pretty straightforward.

Our final income stock has had a name change since January, switching from Diversified Gas & Oil to Diversified Energy Co (LSE:DEC). The decision is tied to a more comprehensive rebranding in conjunction with its 20th anniversary celebration in August, explains the oil producer. We’ll find out more in due course.

The share price is down 6% since mid-January, but shareholders will have received the 4 cents dividend for the fourth quarter of 2020, worth 2.81p, and will receive another 4 cents for the first quarter of 2021 if they hang on until 2 September. At this rate, the shares are yielding over 10%.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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.

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