Some assets are only accessible to private investors via funds. But UK-listed equities are easily accessible, so if you have the time and resources to do the necessary research on them, you may want to invest in these directly rather than via funds. You should always do your own research on these thoroughly, but to kickstart your thinking we’ve picked out 10 shares we believe have the potential to deliver solid returns over time and are worth their prices.
Legal & General (LGEN)
In October, we made the case that Legal & General's shares were too cheap. Although the stock has re-rated since then, the structure of the business – internationalised flows to its investment arm, a booming bulk annuity business, and a canny sideline in project finance – lead us to believe it has further to run in 2020. And with environmental, social and governance (ESG) concerns now the hottest topic in asset management, we view this group’s track record on sustainable investing as a bull point. AN
Ashmore (ASHM)
Emerging markets (EM) account for 86 per cent of the world’s population, more than half of gross domestic product, and three-quarters of foreign exchange reserves. Demographic trends are powering economic convergence with the developed world. The diversity and liquidity of potential investments is already enormous, and growing. And yet for various reasons, international capital has largely overlooked these facts. Step forward Ashmore, which should attract funds to its various EM-focused equity and debt mandates. A long-term structural play on developing financial markets. AN
Porvair (PRV)
Porvair is a specialist filtration business that supplies bespoke filtration products and environmental technologies into three key areas: aviation and general industry, laboratories, and the purification of molten metal. Regulations require the replacement of these products, many of which are designed into customers’ supply chains and are therefore difficult to replace. Add to this the average length of Porvair’s contracts – around seven to 10 years – and it’s easy to see how difficult it is to steal business from this company. At 26 times forward earnings, Porvair isn’t the cheapest stock. Its dividend yield is also nearly non-existent. But this company regularly beats analyst expectations and offers investors sustained defensive growth. Those who followed our 2018 buy tip for this business will have seen the value of their stock nearly double since then. So we think Porvair is worth the premium. Buy. AJ
Rentokil Initial (RTO)
Rentokil is capitalising on long-term structural drivers of demand for pest control services – increasing urbanisation, rising food and workplace regulations, and climate change. It was Royal London Sustainable Leaders Trust's (GB00B7V23Z99) third-largest holding at the end of last year and its manager, Mike Fox, believes pest control is an “exceptional industry”.
The global pest control market was estimated to be worth around $20bn (£15bn) at the end of 2019, growing at an annual rate of 5 per cent. So Rentokil is well positioned to benefit as the number one player in 50 of its 80 markets. North America holds the most growth potential and the group is set to generate $1.5bn of revenue from the region by the end of 2020. At 33 times forecast 2020 earnings, its shares aren’t cheap, but number one US pest control player Rollins (US:ROL) is currently trading on a price-to-forward earnings ratio of 49 times. Rentokil is worth buying for its long-term defensive growth. NK
Johnson Service (JSG)
Johnson Service provides essential textile rental and cleaning services, supplying companies across the UK with the linen and workwear needed to keep their operations running smoothly. Against a more uncertain backdrop last year, the group continued to secure more work from new and existing customers, growing underlying sales by 8 per cent in the first half. Its organic growth has outstripped rival Berendsen, which is now part of Elis (ELIS:PAR), for the past eight years. With a track record of exceeding expectations and analyst upgrades, the latest results are set to be no different, with the group guiding that full-year results will come in slightly ahead of consensus forecasts. The shares have pulled back from their 52-week high, but we still see long-term growth potential. A fragmented market offers further opportunities to achieve local economies of scale and a new high-volume linen plant, due to open in the spring, will increase capacity by to a fifth. Johnson is one to include in your portfolio for steady, reliable growth. NK
Anglo American (AAL)
Anglo American is a dividend-paying, diversified and low-debt miner. Its positive 2019 performance was driven by palladium’s historic highs and a high iron ore price in the first half, and chief executive Mark Cutifani joined the share buyback party with a $1bn (£770m) programme. This was well after the other diversified miners rewarded shareholders after recovering from a downturn, but prudence is not a bad thing in such a variable sector.
As copper bulls, we see the Quellaveco mine as a solid investment. We are less certain on the unpopular £405m purchase of Sirius Minerals (SXX), but this will only form a minor part of the company’s portfolio. AH
Royal Dutch Shell (RDSB)
In the great energy transition competition, BP (BP.) has leapt ahead in the PR stakes by promising to get to net zero carbon emissions by 2050. Royal Dutch Shell, meanwhile, has been working out how to turn itself into a broader energy company, becoming an electricity and gas retailer and backing more natural gas projects and infrastructure. While this could see margins decline, what makes Shell's medium-term prospects good is its 2021-2025 dividend plan. Announced last year, this will see $125bn (£96bn) handed out to shareholders over five years. There is also another $15bn in share buybacks set for this year, as part of a two-year, $25bn programme. Current weak conditions could see this extended into next year, but the overall theme is change with continued hefty payouts. AH
LXI Reit (LXI)
Commercial property developer and landlord LXI Reit invests across nine sub-sectors, including industrials, budget hotels and healthcare. The real estate investment trust (Reit) has generated a secure rental income stream from its diverse portfolio, with 57 per cent of leases by value linked to retail price index (RPI) inflation and 20 per cent to consumer price index (CPI) inflation. Some 19 per cent of its holdings' leases, meanwhile, have fixed uplift rent reviews. LXI's Reit's managers are targeting a dividend of 5.75p a share for the March 2020 financial year, which at the current price leaves the shares offering a potential yield of 4.3 per cent. EP
Dunelm (DNLM)
As retail increasingly moves online, the retailers that are succeeding are those that are either entirely online such as Boohoo (BOO), or those that can balance their online and offline operations. Dunelm is in the latter camp, deftly using digitally-enabled purchases such as click-and-collect to help drive footfall to its stores. What’s more, the group recently completed the transition to a new online platform, speeding up performance and allowing it to handle more traffic. This is expected to enable further online growth, which has already been impressive at 33.2 per cent in the six months to 28 December last year. TD
Aveva (AVV)
Industrial software giant Aveva operates in a market estimated to be worth £15bn. The reverse takeover of Schneider Electric’s software wing in 2018 enabled the group to strengthen its position in its principal sector, oil and gas, by sales. It has also diversified its end markets, resulting in leading positions in areas such as food and beverage, and pharmaceuticals.
Aveva continues to make headway on its medium-term financial targets, which include growing constant-currency revenues at least in line with the broader market. A recent trading update revealed that the group had achieved high-single-digit organic constant-currency sales growth in the first 10 months of its financial year, helped by strong orders in rental and subscription, partly offset by much lower initial and perpetual licences and services. Aveva also said that the fourth quarter had started well.
Investing in software can be high risk, but we think that Aveva is well positioned for longer-term growth and a forward dividend yield of 1 per cent, while small, also doesn’t hurt. HC
