Give your ISA a six pack

PUMP UP YOUR PORTFOLIO WITH OUR GROWTH AND IN­COME MID-CAP PICKS

Shares - - CONTENTS -

The mid cap space is home to many ex­cit­ing in­vest­ment op­por­tu­ni­ties. They are gen­er­ally well-es­tab­lished busi­nesses with rev­enue and profit; yet they also have plenty of room to keep grow­ing at a much faster rate than the UK’s largest quoted com­pa­nies.

The mid cap space is gen­er­ally rep­re­sented by the FTSE 250 in­dex – which is up 8.8% so far this year. That’s more than dou­ble the 3.4% re­turn from the FTSE 100 in­dex. The out­per­for­mance is even clearer when you look at the chart for the past 10 years.

The re­cently con­cluded first half re­sults sea­son ce­mented this trend. An­a­lysts at in­vest­ment bank UBS note: ‘De­spite the on­go­ing un­cer­tainty around the UK eco­nomic back­drop, the re­cent re­sults sea­son saw the FTSE 250 out­per­form the FTSE 100 in terms of both share price per­for­mance and net earn­ings up­grades, with around 60% of the 150 FTSE 250 com­pa­nies which re­ported since 1 July see­ing their share price rise on the day, and around 25% ris­ing by more than 3%.’

HERE ARE SOME EX­AM­PLES WHY MID CAP STOCKS ARE AN AT­TRAC­TIVE AL­TER­NA­TIVE TO BIG CAPS

Growth po­ten­tial

First; just by dint of be­ing smaller, mid cap firms typ­i­cally have more sig­nif­i­cant growth po­ten­tial and could in­crease their profit at a rapid rate if things are go­ing well.

Choice

The FTSE 250 is more di­verse than the FTSE 100 with ar­eas such as en­gi­neer­ing and tech­nol­ogy more widely rep­re­sented.

Po­ten­tial for earn­ings up­grades

Com­pa­nies on the FTSE 250 are not as widely fol­lowed as those on the FTSE 100 so eq­uity an­a­lysts are more likely to un­der-es­ti­mate (or over­es­ti­mate) earn­ings.

This can be both a good and a bad thing. Earn­ings up­grades can lead to in­creases in the share price although the re­verse is true if a company falls short of earn­ings fore­casts.

And although mid cap stocks are typ­i­cally more volatile than the largest com­pa­nies on the FTSE 100 they are un­likely to see the wild swings in share price seen in small and mi­cro-cap com­pa­nies. They are also much more likely to pay a div­i­dend and can there­fore of­fer a win­ning com­bi­na­tion of growth and in­come.

CANDIDATES FOR PRO­MO­TION

Another rea­son to take a good look at the FTSE 250 is that the in­dex con­tains many con­tenders for the top tier of the UK mar­ket. In sim­ple terms, it pro­vides the pool from which the mar­ket gi­ants of to­mor­row are drawn.

WHICH STOCKS ARE THE MOST AT­TRAC­TIVE?

In­vest­ment bank Beren­berg has set it­self the task of iden­ti­fy­ing the large caps of the fu­ture, look­ing not just at the FTSE 250 but also some of the larger com­pa­nies on AIM.

It com­ments: ‘Hav­ing met over 250 com­pa­nies in the past four years and screened many more, we have es­tab­lished a frame­work

for think­ing about busi­nesses that tries to iden­tify which of them can be­come ma­te­ri­ally big­ger on a multi-year view.’ Its top picks in­clude com­puter games ser­vices group Key­words Stu­dios (KWS:AIM), fi­nan­cial ser­vices group Sanne (SNN), lig­i­ta­tion spe­cial­ist Bur­ford Cap­i­tal

(BUR:AIM), vet­eri­nary group CVS (CVSG) and on­line travel

agent On The Beach (OTB).

The top 10 list is com­pleted with food sup­plier Cran­swick (CWK), iden­tity data firm GB Group (GBG:AIM), doc­u­ment stor­age spe­cial­ist Re­store

(RST:AIM), leisure stock Dalata Ho­tels (DAL) and gam­ing ma­chines tech­nol­ogy busi­ness

Quix­ant (QXT:AIM).

Beren­berg has also iden­ti­fied three cur­rent themes worth play­ing along­side these longterm pref­er­ences.

Look­ing to ben­e­fit from ‘pock­ets of op­ti­mism’ in the UK econ­omy it high­lights the at­trac­tions of house­builder MJ

Glee­son (GLE), baker Greggs (GRG) and building prod­ucts busi­ness Vo­lu­tion (FAN).

It has also iden­ti­fied some good value, good qual­ity names in­clud­ing in­dus­trial thread man­u­fac­turer Coats (COA), pack­ag­ing play DS Smith (SMDS) and tem­po­rary of­fice space provider IWG (IWG).

Fur­ther­more, it also likes three busi­nesses cur­rently en­gaged in a re­struc­tur­ing process, namely elec­tron­ics out­fit Laird (LRD), building ma­te­ri­als firm Low

& Bonar (LWB) and spe­cial­ist

re­tailer Pets at Home (PETS).

Read on to dis­cover the stocks picked by the jour­nal­ists at

Shares. We high­light six stocks with a mix of value and in­come at­trac­tions from the FTSE 250.

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.