Lee Wild’s speculative growth equities include car tech leader AB Dynamics, with British American Tobacco, and lender Morses Club delivering the income.
With this bull market nearly a decade old, sadly there was no escaping the gloom in 2018. During a period of rising US interest rates, higher inflation and withdrawal of monetary stimulus, events that impact on growth carry even greater risk – and there are plenty of those, from Brexit to trade wars.
Four of my six tips for 2018 are currently showing a loss, but there were opportunities to turn a handsome profit over the year. Of the speculative growth tips, own-brand supermarket product-maker McBride had risen 4% before diving 40% following a profits warning. Prudential’s decision to demerge the UK business is seen as high-risk, which explains the switch from 9% gain to 15% loss. Electronics firm DiscoverIE was our star speculative growth stock. The shares surged 38% over six months to June, and are still up 5%.
Among the speculative income plays, Lloyds reversed a 12% profit, but the shares did generate attractive income. Galliford Try also delivered big dividend payments, but the shares fell 34%. On a brighter note, M&S shareholders received healthy dividend income and a small capital gain.
More expert tips
- Global fund and trust tips
- Specialist funds and trusts
- UK shares: six stocks for growth and income investors
- UK fund and trust tips: what are the best routes into the unloved UK?
- Regional fund and trust tips: value can be found if you know where to look
- Bond tips: time for defensive stance as bull market struggles
AB Dynamics (ABDP)
Share price 1,450p; p/e ratio 29.5; dividend yield 0.3%
An Alternative Investment Market (Aim) 10-bagger, AB Dynamics trades on 29 times earnings, dropping to under 24 times for 2020. Shares are not cheap, but making equipment used to test and develop the cars of the future is high-margin work, and AB is tipped to deliver compound annual growth of 25% over three years. Spending heavily on extra capacity to drive growth comes at the expense of margin, but net cash was £16 million at year-end and the order book stretches deep into 2019.
Share price 1,411p; p/e ratio 25.9; dividend yield 1.2%
It’s been a significant beneficiary of the equities bull run, rising eightfold since 2009, but Halma – now a FTSE 100 constituent – is a port in a storm and well-placed to navigate possible stockmarket turbulence in 2019. A global portfolio of companies supplying technology used in hazard detection, life protection, personal and public health improvement and protecting the environment spreads risk for investors, should economic growth slow suddenly.
Share price 2,483p; p/e ratio 42.7; dividend yield 0.6%
Fevertree’s premium drinks mixers generated £104 million of first-half revenue, up 45%, and a 36% increase in pre-tax profit to £32.6 million. The company regularly exceeds expectations, and said in July it would do so again this year. Despite skipping the usual update in November, industry data implies full-year UK growth could be 35-45%, double some estimates. The shares aren’t cheap despite their recent slump, and they are volatile, but further progress here and promise of overseas growth make Fevertree a speculative buy.
British American Tobacco (BATS)
Share price 2,783p; p/e ratio 8.8; dividend yield 7.6%
British American Tobacco has been replacing lost revenue in its old core market with vaping products and more enthusiastic customers in emerging markets. This isn’t one for ethical investors, but the latest share price crash following a possible ban on menthol cigarettes in the US does off er a great opportunity for both income and capital appreciation. Concerns around BAT’s debt look overplayed, a p/e of less than 9 looks too cheap, and the yield prices in plenty of bad news.
Morses Club (MCL)
Share price 135p; p/e ratio 8.8; dividend yield 6.5%
Morses Club is the UK’s second-largest doorstep lender. It’s been listed on the Aim only since 2016, but involved in the industry for over 20 years. Extra financial backing just received gives Morses the firepower for acquisitions as the sector consolidates. New Open Banking regulation to create more competition and innovation should play into Morses’ hands. The yield is covered 1.7 times by earnings, and a single-digit p/e is undemanding for this steady performer.
Share price 168p; p/e ratio 16.2; dividend yield 7.9%
Competition is fierce, especially in Spain and Italy, and Vodafone shares had lost a third of their value since May. Concerns about spending on the 5G spectrum and borrowing for mega-acquisitions such as Liberty Global have also raised concerns about the dividend. However, a further €1.2 billion in cost cuts over the next three years and improving momentum outside of trouble spots should secure the generous payout in 2019.
Prices and yields are as at 3 December 2018.