Share tips of the week – 06 January 2023

Here are the top share tips from the rest of the UK’s financial pages. These have been collated from newspapers and magazines published over the last week and are aimed at active investors.

Unlikely our usual weekly share tips, these are the tips for the year ahead, not just the week.

We have all the updates from the Times, Telegraph and other publications.

Here are the share tips of the week and the companies tipsters are recommending for 2023.

Share tips for 2023

The Times

Industrial products distributor Diploma provides seals, gaskets and other vital widgets for the construction, mining and agriculture industries. The accompanying technical support gives the group pricing power that helps it maintain “superior margins” in spite of inflation. This is a high-quality firm with the potential to offer “high compound returns” (2,790p).

Premier Inn owner Whitbread’s £3bn estate of hotels and restaurants could spark takeover interest in the year ahead. The pandemic has weakened independent competitors and with less capacity in the market, hotel room rates are rising (2,589p).

Safety-equipment specialist Halma operates in an industry with “high barriers to entry” and consequently “enviable” gross margins of 60%. Yet it has still been caught in the market sell-off. With the shares down by 39% in 2022 they trade on a valuation discount to the five year-average and offer a tempting entry point (1,974p).

Upper Crust and Caffè Ritazza-owner SSP returned to pre-tax profit last year after a costly pandemic. UK rail strikes are hampering the group’s post-Covid recovery (British sales are still just 84% of pre-pandemic levels), but an end to that problem and expansion in North America could bring upside in the new year (229p).

Rentokil Initial’s $6.7bn acquisition of US rival Terminix has “dramatically” increased the pest control group’s position in the American market. There are also opportunities in emerging markets as population growth and urbanisation increase demand for the group’s services (508p).

The technology slump presents a golden opportunity to buy into semiconductor equipment maker ASML. The Dutch firm has few competitors and has grown earnings per share at “an average rate of more than 25% per year for the past 18 years”. Sales could triple over the next eight years compared with 2021 levels, which should generate “vast amounts” of cash for share buybacks (€535).

Complex supply chains and inflationary pressures are strong tailwinds pushing new businesses towards catering outsourcer Compass, a group with “underappreciated growth potential” (1,908p).

US litigation over heartburn drug Zantac has weighed on GSK this year. Yet on 9.9 times 2023 forecast earnings and a 4% prospective dividend yield, it is now “far cheaper” than pharmaceutical peers. The demerger of consumer healthcare arm Haleon means the shares could finally be “going places” (1,418p).

The cost-of-living crisis spells trouble for retailers, but JD Sports boasts a robust balance sheet and the weaker economic outlook “looks more than priced in”. The store’s “sneakerhead” customers are devoted trainer shoppers and business has proved resilient in previous downturns (115p).

Photo booth-to-laundry play ME Group International (formerly known as Photo-Me International) enjoys roughly 30% returns on invested capital thanks to “long-term contracts with infrastructure owners… and government agencies”. A strong post-pandemic recovery has seen the shares rally by 75% in 2022 and there should be more to come (113p).

The spending squeeze will see households eschew dining out for home-cooked meals, driving greater demand for the convenience foods, cakes and cooking sauces produced by Premier Foods. The group’s brands have enough pricing power to preserve margins and on ten times forecast earnings for the year to March 2024 the shares are “looking tasty” (108p).

Asia-focused insurer and asset manager Prudential offers a way to buy into China’s reopening without the risks of investing in opaque local firms. An estimated 80% of Asia’s population currently has no insurance, so as the region’s middle class expands the growth opportunity is large (1,049p).

If gold shines in 2023 then East Africa-focused Shanta Gold is likely to rise with it. Just remember that miners are a risky way to play the gold price (9p).

The return of former CEO Bob Iger to Walt Disney could deliver a new lease of life to the “House of Mouse”. The shares now offer an attractive entry point after a bumpy year ($86).

Motley Fool

The low-cost offerings from baker Greggs will prove popular in a recession. The business enjoys “impressive cash-flow generation, a solid brand, and a fully integrated supply chain”. It also has room to grow through new store openings and by doing more trading in the evening (2,346p).

Growth will be hard to come by this year, so income stocks look especially attractive. Landlord PRS Reit commands a portfolio of “almost 5,000 residential rental homes” and the shares look poised to yield 4.6% for the year to June 2023 (89p).

Higher interest rates are driving better profit performance at banking group NatWest. Despite a strong earnings outlook and a “market-beating” dividend yield the shares trade on a bargain six times forecast 2023 earnings (265p).

Shell’s shares roared in 2022, but they are still “dirt cheap”. The West’s incoherent energy policies, which combine curbs on investment in new capacity with stop-gap attempts to force down prices, mean the long-term outlook for commodities is auspicious (2,326p).

Small and medium-sized firms need ways to hedge currency risks, but the traditional corporate banking institutions are prohibitively expensive. Currency exchange fintech Alpha Group is muscling in. Revenue and pre-tax profits are rising at a “double-digit pace” and the group is also keen to conquer the Australian market (1,850p).

Digital advertising specialist S4 Capital has been squeezed by rising costs and shrinking advertising budgets, but on a longer view Martin Sorrell’s new outfit could still prove a “phenomenal” growth story (183p).

There is room to consolidate the fragmented US industrial equipment-rental market and Ashtead, which has a 12% US market share, is well placed to do it. The group, which also operates in the UK, has spent “more than $2bn on dozens of bolt-on acquisitions since 2020” as it seeks to build scale. A recession could even help it to “mop up weaker competition” (4,720p).

Shares in housebuilder Barratt Developments are down by 50% in a year, but this “strongly cash generative” business offers “long-term value”. A “forecast 9% dividend yield” is also nothing to sneer at (397p).

The Telegraph

Shares in Wagamama-to-upmarket pub owner The Restaurant Group have plunged by more than two-thirds over the past year, but the group’s “lucrative freeholds” and “cash cow airport concessions” could start to attract bids from private-equity players (31p).

The outlook is grim for British retailers, but the sort of customer who spends £2,000 on a Burberry trench coat is probably “not facing as tight a squeeze as others”; China’s reopening could also make for a more lucrative year (2,038p).

Shrinking digital advertising budgets have hit shares in advertising giant WPP hard over the past year, but with the shares down by a third over five years the group looks “primed for a takeover” (820p).

The energy squeeze is accelerating investment in renewable energy projects, sending shares in California-based solar giant Enphase Energy up by 50% in a year. Rising demand for residential solar and electric vehicle charging will remain a strong tailwind ($263).

Unfortunately, a weak economy and dearer credit will send more companies to the wall this year. That will at least create more work for corporate restructurer Begbies Traynor, which also pays a 2.5% dividend yield (145p).

While technology slumped in 2022, demand for the mundane work done by enterprise productivity software endures. Shares in sector play Softcat are down by 30% in a year, but could be due a rebound once the market bottoms out (1,184p).

Optimists inclined to bank on a consumer recovery by the end of 2023 may wish to look at Tesco, whose shares could bounce after hitting a six-year low in October (225p).

In turbulent times the “steady, regulated returns” from National Grid’s UK and US gas and electricity networks are appealing. The “urgent need” to build out grids for the energy transition should also keep the share price ticking along (1,001p).

Manchester-based nanotech play Nanoco Group is suing Samsung for intellectual property infringement over its use of “quantum dot” technology in QLED televisions. If the claim is upheld in court the City believes the complaint “could be worth north of $500m (£414m)”, far above the group’s current £140m market capitalisation (44p).

The Sunday Times

Power converters specialist XP Power had a dire 2022 (the shares lost 60%), but could be better placed as we enter a new year. The supply problems that have plagued the business should begin to ease and the near-5% dividend will provide welcome relief if we enter recession. The shares should also offer “a bit of va-va-voom” should a recovery arrive later in the year (2,005p).

Shares in electric trucks and Amazon delivery vans manufacturer Rivian crashed by 80% in 2022 as investors grew weary of funding losses that could top $7bn this year. But production is ramping up and as Tesla has shown, “once manufacturing starts at scale, the finances improve dramatically”. With a bit of luck Rivian could be “the next Great American car brand” ($18).

Uncertainty around windfall taxes has dampened enthusiasm over energy supplier SSE, but this is “one of the few big British businesses investing heavily in energy security”. Its renewables division also means it could attract a bid from an oil major looking to go green (1,713p).

Commercial and logistics landlord Segro has had a strong decade thanks to the rise of e-commerce. Last year’s ructions have left property firms “oversold” and Segro looks “very cheap” (764p).

Homeware specialist Dunelm is gaining market share, with sales up by more than 40% on pre-pandemic levels. The group’s focus on “good-value products in cheap, out-of-town locations” should preserve it from the worst of the cost-of-living squeeze (979p).

The slump in City flotations has hampered stockbroker and corporate adviser Numis. While few expect a revival in early 2023, the company should be well placed for any pick-up later in the year (191p).

Rising interest rates and weak equity markets have left private-equity groups such as 3i in a tricky position, but the group’s value-focused holdings in infrastructure and healthcare leave it poised to “thrive in the tougher economic climate” (1,342p).

Interactive Investor

Self-storage business Lok’nStore Group looks a resilient pick for tough times. The group has been a “consistent performer” for two decades and the rising book value of the group’s sites should limit any downside surprises (980p).

Infrastructure maintenance group Renew Holdings is highly cash-generative, but trades on just 11 times 2022-2023 prospective earnings. A significant amount of its business comes from long-term contracts, which should cushion the hit from a weaker economy (689p).

DSW Capital licenses its brand and provides back-office support for corporate finance and accounting professionals in return for a slice of their income. Insolvency work is picking up and there is still “plenty” of growth potential from recruiting new “fee earners” and expanding into new regions. A forecast yield of 5.1% is also attractive (120p).

ActiveOps offers management software that automates back-office operations, with a particular focus in the finance sector. Such tools are especially appealing at a time of spiralling business costs. The group is loss making, but could break even in 2023-2024, with a decent cash pile to tide it over until then and promising growth prospects thereafter (76p).