Friday tips round-up: Diageo, Lonmin, RSA
09/05/2008
Spirits giant Diageo does not want to be regarded as a defensive stock (a good reputation for now, but not racy enough in a bull market). However, broker Merrill Lynch reckons that is exactly why investors should pile in. A prolonged financial crisis would kybosh the group's defensive qualities, but others will suffer long before Diageo does. Buy says the Independent.
Platinum miner Lonmin is a bit flaky when it comes to output predictions. Along with others, the group has suffered at the hands of the South African electricity group Eskom's inability to keep the power to its mines on in recent months. Investors should probably hold on until the company comes up with some concrete production estimates later in the year. Hold says the Independent.
Avoid Lonmin. In the current period of uncertainty investors should seek better value elsewhere in the mining sector adds the Telegraph.
Royal & Sun Alliance, soon to be RSA, is a compelling investment case. Despite it quite openly saying it is passing on increasing rates to customers while some of its competitors are cutting premiums, the company has a retention rate of somewhere close to 80%, which is not bad in any market. With a growing emerging market business and the discipline to increase rates to customers, investors should feel at ease. Buy says the Independent.
Soaring commodity prices may be taking their toll of the stock market’s smaller food producers, but evidently not of the mighty Unilever. There is a danger that Unilever’s price rises will become harder to achieve as the economy weakens. There is also the concern that investor enthusiasm will wane as the company’s restructuring nears completion. However, at £17.52, or 15 times 2008 earnings, Unilever’s recovery remains on track. Hold says the Times.
Caution is still required over fashion giant Next. Pent-up demand for spring ranges could be soon exhausted. Next’s vigorous expansion of new space has put pressure on sales densities, and H&M and Primark are formidable foes in a slowing economy. With profits over the next three years still forecast to fall, there is better value elsewhere. Avoid says the Times.
Newspaper gloom is reflected in the price of Trinity Mirror, which trades at six times earnings and yields more than 8%. The multiple has barely been lower and the yield higher; if earnings halved it would trade at ratios seen only a couple of years ago. The price also assumes that Trinity has no wit to fight the tide. Under such financial pressure, further newspaper mergers make sense – if the competition authorities can agree. At 273¼p, up 12½p, the stock market is suggesting that Trinity Mirror has no long-term future. That is harsh. A contrarian buy says the Times.
Old Mutual's share price already reflects the current under whelming trading and, should the markets recover, there is considerable room for upside. It is the least expensive UK listed insurer, trading on 7.3 times earnings with a 6% dividend yield. Perhaps now is not the time to buy, but existing owners should hold on for potential upside. Hold says the Telegraph.
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