MoneyWeek’s comprehensive guide to this week’s share tips
Five to buy Ashtead Group
This US-focused constructionequipment rental group recently “stumbled” amid signs of faltering demand for construction as higher interest rates bite. But there is still plenty of federal money behind infrastructure projects and it would be unwise to bet against a “tightly run” business that has shown an “uncanny ability” to shrug off economic weakness. This “demand scare” looks like a buying opportunity.
Costain
Shares in this infrastructure and engineering contractor are up by more than 25% in a year as business enters recovery mode. In September management declared a dividend for the first time since the pandemic and recent full-year results showed progress on margins and a strong pipeline of work already booked. “Strained public finances” do pose a medium-term risk, but the balance sheet is strong, with a huge cash pile giving Costain scope to buy up smaller peers or raise dividends. On just 6.4 times earnings the shares remain cheap.
Kitwave
This distribution business ships branded food and drink to more than 40,000 corner shops, cafes and caterers across the UK. A crucial cog in the supply chain that keeps small retailers running, Kitwave is growing much faster than its peers, while a highly fragmented market offers scope to grow through acquisition. Pre-tax profit rose by 39% in the year to 31 October 2023 . The shares have done well since listing in 2021 and this “North East success story” should endure.
Mitie
After a long spell of scandals, the outsourcing industry is back. Revenue topped £4bn last year at this FTSE-250 operator of everything from hospitalcleaning services to policecustody suites. There is strong demand for Mitie’s security and energy-efficiency know-how, while it is also getting better at cross-selling additional services to existing clients. Labour might try to “insource” some of the work, but low margins and a need to expand the NHS make a big structural shift unlikely. On ten times earnings, the shares look cheap given the “momentum”.
One to sell BT Group
Shares in this one-time telecoms monopoly have lost more than half of their value over the past five years, including a crash of 16% since the start of 2024.
Nomura Holdings
This Japanese brokerage business has been a big winner from the country’s stockmarket boom. Local investors are trading more frequently on their accounts, while profits at the investment-banking division have reached a six-year high. A strong balance sheet is enabling an ongoing ¥100bn (£531m) share-buyback programme and there is plenty of scope to cut fat from a bloated cost base. On 12.5 times earnings, the valuation is “undemanding”.
The group is beset by problems that cannot easily be fixed. Revenue has fallen by nearly £4bn since 2017 as competitors snap at its heels and cashstrapped households look for the cheapest option. Management is making some progress on costcutting and on just six times earnings and yielding a forecast 6.8% dividend yield, the shares are undoubtedly cheap. Yet that dividend income isn’t worth it given the very real risk of it being negated by further capital losses from the share price. Avoid.