Six UK value stock tips for 2019
28th December 2018 13:00
by Richard Beddard from interactive investor
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In his buy list for 2019, companies analyst Richard Beddard reveals the shares he thinks are cheap and should grow. The income selections pay the highest dividend too.
So I make no forecast for this small selection in 2019 although, as usual, I will track their performance. A portfolio of the six shares selected in 2016 would be worth 50% more than it was three years ago. In comparison, the accumulation units of a FTSE All-Share index tracking fund are worth 22% more. The 2017 portfolio is worth 27% compared to 12% for the tracker, and the 2018 portfolio has put on 0.1% compared to the tracker's decline of 2.3%.
Happily, only three of my picks has declined, all of them in the 2018 portfolio. They are James Halstead, System1 and Solid State, a company I am backing again in 2019. However, to judge whether you think these shares are likely to bring prosperity, I urge you to look beyond the stats and find out about these businesses in past issues of Share Sleuth and Share Watch, my articles on interactive investor, and the annual reports of the companies themselves.
These shares have risen to the top of my buy list because I think they are cheap at the current price, they should all grow, and the income selections pay the highest dividend too.
Prices and yields are as at 28 November 2018.
Value-based growth
Goodwin (GDWN)
Share price £26.80; earnings yield 5%; dividend yield 3.1%
Although profitability at Goodwin has fallen sharply over the last few years, the family firm has taken advantage of recession in the oil industry to reconfigure its foundry to cast components at a scale few rivals can match. The firm has won orders to supply the US Navy's submarine building program and the nuclear industry – markets that were previously closed to it – and helped by the closure of rival foundries a new period of prosperity beckons.
Howden Joinery (HWDN)
Share price 463p; earnings yield 6%; dividend yield 2.6%
Fitted kitchen supplier Howdens sits comfortably in this list because of its policy to sell only to hundreds of thousands of small builders. It provides them with everything they need, including credit and near 100% stock availability. In turn, the builders are like an unpaid salesforce – and, unlike retail customers, they keep coming back. It is a relationship that has turned Howdens into the biggest supplier of kitchens in the UK.
Trifast (TRI)
Share price 193p; earnings yield 7%; dividend yield 2.0%
Trifast manufactures fasteners – the nuts, bolts, rivets and screws that hold car dashboards, washing machines and telecommunications equipment together. The industries it serves are cyclical, so profitability will likely fluctuate in future, but not as much as it has in the past. Like all the companies in the list, Trifast is constantly improving. Acquisitions have broadened its industrial and geographical markets and increased sales of high-value bespoke, branded or licenced products.
Value-based income
Next (NXT)
Share price £51.50; earnings yield 7%; dividend yield 3.1%
In this period of heightened competition there will be winners as well as losers among retailers. I reckon fashion and homeware retailer Next is a winner. While the profitability of its retail estate is declining, it is still profitable. Under its eminent chief executive Lord Wolfson, the company is ensuring it commits to short leases and making maximum use of space in its shops. Meanwhile, Next already earns more profit online and it is positioning itself as a distributor of other non-competing brands.
Solid State (SOLI)
Share price 324p; earnings yield 9%; dividend yield 3.7%
On an earnings yield of 9%, Solid trades at the lowest valuation of all the selections. Traders refuse to love it, even though it has earned an average return on capital of 19% over 11 years, more than quadrupling revenue and profit. A manufacturer of radios, batteries, rugged computer systems and antennae, and a distributor of electronic components, it specialises in products for harsh military and industrial environments that relatively few companies have the authorisations and know-how to supply.
XP Power (XPP)
Share price £21.50p; earnings yield 7%; dividend yield 3.6%
XP Power manufactures power converters used in industrial and healthcare equipment. It has grown by designing more efficient, reliable convertors that fit easily into machines, and by winning a greater proportion of the sales to blue-chip customers. Recent acquisitions have increased XP Power's exposure to the semiconductor equipment industry, which has a cyclical past, but the company believes stability is coming as semiconductors proliferate in machines of all kinds.
Contact Richard Beddard by email: richard@beddard.net or on Twitter: @RichardBeddard.
Richard Beddard is a freelance contributor and not a direct employee of interactive investor.
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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