There’s No More Gold in Gold

Although up for the year, the precious metal is still trapped in mediocrity. Silver and platinum are even worse.

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A Neil Woodford recovery stock I’d buy alongside AstraZeneca plc

AstraZeneca

Ace investor Neil Woodford likes the look of IP commercialisation company Allied Minds (LSE: ALM). And so do I, now.

Mr Woodford holds it in his LF Woodford Equity Income Fund but hasn’t had a great deal of success with it so far. At 140p, the shares have lost 80% of their value since their peak in April 2015 — but he holds them in a well-diversified portfolio with a long-term vision.

On Monday, Allied Minds shareholders got some favourable news, with its SciFluor Life Sciences subsidiary announcing good results for its SF0166 candidate for the treatment of ‘wet’ age-related macular degeneration.

Headlines announced “improvements in vision along with significant decreases in central retinal thickness and fluid levels reported” in nine out of the 42 patients in the study, and “demonstrated safety with no drug-related serious adverse events.” It might sound obvious, but those two outcomes — it works, and it’s safe — can be remarkably hard to achieve.

Age-related macular degeneration can be seriously debilitating for its sufferers, so this has got to be seen as a positive step forSciFluor and for Allied Minds.

Wider technology

Looking at the bigger picture, Allied Minds — which is involved in technology and communication developments as well as life sciences — is starting to attract the funding it will need if it is to get as far as making a profit. A number of big investors took part in a funding round for subsidiary Federated Wireless in September which raised $42m.

There are no forecasts for profits on the horizon just yet, but today’s Allied Minds looks a significantly more attractive prospect after the decision to dump some of its subsidiaries earlier in the year. A bit speculative, but there could be great potential here.

Safety in size

Neil Woodford offsets risk by investing in established companies in similar sectors to his smaller investments — as well as the financial sector (including firms investing in technology), he holds a sizeable chunk of AstraZeneca (LSE: AZN).

And AstraZeneca had some welcome news the same day too, after the FDA in the US accepted a supplemental New Drug Application for the company’s cancer drug Tagrisso relating to the treatment of metastatic non-small cell lung cancer. The submission is based on the results of an earlier Phase III trial which showed significantly improved progression-free survival in patients with advanced metastases, and it comes after the European Medicines Agency had accepted a similar application.

It’s early days for the new development, but Tagrisso is already an approved drug for specific cancers in more than 60 countries, including the lucrative markets of the US, EU, China and Japan.

I’d buy now

Looking at the bigger picture for AstraZeneca, we’re still not back into forecast earnings growth territory yet, and the downturn that was driven by the expiry of some key patents a few years ago is lasting longer than many of us thought. 

But Q3 results make me think this year could turn out better than expected, with reported EPS for the first nine months looking flat overall (+3% at actual exchange rates, -4% at CER), with a fall in the underlying figure of between 4% and 7%.

Operating profit seems to be turning around nicely, and the predicted dividend looks reliable with a yield of 4.4%. I still see AstraZeneca as a dependable long-term investment.

The FTSE 100’s best

AstraZeneca is a firm FTSE 100 favourite of mine for contributing safety to a long-term portfolio and offsetting any riskier investments you might want to make. The Fool’s 5 Shares to Retire On report examines more cash cows that I reckon are worth serious consideration too.

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The Motley Fool UK has recommended AstraZeneca. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

2 top recovery plays for 2018

Ophir Energy

What will be the most profitable sectors to invest in during 2018? I believe one potential choice is oil and gas. Although the shares of most big oil producers have already risen in response to higher oil prices, I can still see potential buying opportunities among the smaller firms in this sector.

Today I’m going to highlight two companies where I believe opportunities may exist.

Onshore market “strengthened”

Oil services firm Hunting (LSE: HTG) has been a big beneficiary of the recovery in the US shale sector. According to the company, its ‘H1 Perforating System’ is increasingly the mandated choice for US onshore drillers, thanks to its reliability.

Trading in the Hunting Titan business, which sells the H1 system, has “strengthened throughout the year”. The other arms of its US business that sell to onshore operators are also expected to report an operating profit this year.

Unfortunately the group’s other US ops plus its regional ops in Canada, Europe, Middle East and Asia Pacific all “remain lossmaking at the operating level”.

Impressive financial performance

It’s clear that the group still faces tough market conditions. But I’ve been impressed by the strength of Hunting’s financial performance.

The group expects to end the year with a net cash position, versus a net debt of about $130m three years ago. By cutting costs and controlling spending, it has continued to generate cash through the downturn.

Negotiations are currently under way with lenders to return the firm’s banking facilities to normal operation. That means that restrictions on dividend payments and spending should be lifted.

A full-year profit of $32m is forecast for 2018. That puts the stock on a forecast P/E of 37. But my view is that Hunting’s shrunken cost base should accelerate profit growth if market conditions continue to improve as I expect. I think this stock could surprise to the upside in 2018.

An overlooked bargain?

Ophir Energy (LSE: OPHR) made a name for itself with several huge gas discoveries off the coast of Africa during the first half of the decade.

However, although the firm’s stake in these discoveries could be worth billions of dollars, finding investors to buy or fund the development of these giants is proving more difficult.

A planned financing deal with “a group of Chinese banks” to develop the Fortuna Floating LNG project off the coast of Equatorial Guinea seems to have ground to a halt.

Ophir announced today that it’s now seeking alternative funding of up to $1.2bn from “a leading Asian bank”. Ophir hopes to close this deal early in 2018, but even if successful it could be several years before gas starts to flow.

In the meantime, revenue is restricted to sales from the firm’s more modest oil and gas fields in Asia. These assets were purchased from Salamander Energy in 2015. Over the 12 months to 30 June, they provided net funds of $68.7m to help support the group’s operations.

A dilemma

At 66p, Ophir shares trade at less than half their book value of around 160p per share. But finding investors to develop the firm’ gas assets and potentially close this discount seems likely to be a slow process. I see these shares as a potential bargain, but patience will be required.

Investing to retire early

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Why this fund could be a better investment than the FTSE 100 in 2018

notes cash sterling

There are many advantages to investing in the FTSE 100. For starters, the index holds some of the largest blue-chip companies in the world such as Royal Dutch Shell and HSBC. It also has significant international exposure as many companies have considerable overseas operations. Furthermore, the footsie is diversified across a range of industries, including financial services, healthcare and mining.

However, one downside is that because it only holds the largest 100 stocks listed in the UK, its focus is very much on large-cap equities. While larger companies can offer more stability and less volatility than smaller firms, in general, they do not grow as quickly as mid- and small-cap equities. This is demonstrated in the performance figures of the FTSE 100 vs the FTSE 250. For example, the former has returned around 50% for the five years to the end of November. The FTSE 250 index, which contains the 250 largest stocks outside the FTSE 100, returned around 90%. That’s a huge difference. Therefore, an allocation to companies outside the FTSE 100 could be a sensible idea for investors seeking strong growth over the long term.

Mid-cap fund

One way to get exposure to such companies is through a fund such as the Schroders UK Mid Cap Fund (LSE: SCP). This fund can be bought and sold in the same way as a regular share through your broker. 

Launched in 2003, SCP’s objective is to invest in mid-cap equities with the aim of providing a total return in excess of the FTSE 250 index (ex investment trusts).

A glance at the portfolio’s performance track record reveals that it has achieved this objective. For the five-year period to end of October, the fund’s NAV returned 16.4% per year, comfortably beating the FTSE 250 ex investment trust return of 14.3%. Since inception, its track record is even better, returning 16.8% per year, vs 13.9% for the benchmark.

That’s a phenomenal long-term return. Financial experts often advise that shares as an asset class can be expected to return around 8%-10% over the long term. This fund has effectively doubled that over the last 14 years. Can you afford to be missing out on those types of impressive gains?

Holdings breakdown

So what stocks does the fund hold to generate that kind of return? Let’s take a look at the top 10 holdings:

Security Weighting
SSP Group 3.9%
HomeServe 3.3%
Renishaw 3.3%
Grainger 2.7%
Intermediate Capital Group 2.5%
Dechra Pharmaceuticals 2.4%
Redrow 2.4%
Rightmove 2.4%
Kennedy Wilson Europe Real Estate 2.4%
Bodycote 2.3%

Source: Schroders. Data as of 31/10

As you can see, SCP takes a unique approach to picking stocks. There’s little focus on popular household names and more of a spotlight on under-the-radar companies. It’s a strategy that works. FTSE 250 caterer SSP Group is up 70% this year. HomeServe has risen 25%. Dechra Pharmaceuticals has surged 50%. Fund managers Andy Brough and Jean Roche are clearly good at picking stocks.

The fund has a yield of 2.2% at present, with dividends being paid twice a year. Ongoing charges are a reasonable 0.95%. The discount to the NAV is currently around 17%. 

While we can’t predict what global markets will do in 2018, I believe having some exposure to mid-cap stocks is a sensible idea for growth investors. The Schroder UK Mid-Cap Fund looks to be an excellent investment vehicle for such exposure.

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Edward Sheldon owns shares in Royal Dutch Shell. The Motley Fool UK owns shares of SSP Group. The Motley Fool UK has recommended Homeserve, HSBC Holdings, and Royal Dutch Shell B. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes
us better investors.

Why WPP plc could be a better FTSE 100 bargain than Lloyds Banking Group plc

Lloyds

I reckon the FTSE 100 has been behaving uncharacteristically over the past couple of years, and it’s throwing up the kind of overlooked bargains that are typically found in the lower divisions of the stock market.

One of those, in my view, is media group WPP (LSE: WPP), whose shares have fallen by 22% over the past 12 months, to 1,383p — though the price has actually ticked up by 10% in the past month, so maybe the market is starting to see what I see.

WPP has actually recorded a pretty impressive five years of solid EPS progress — and though that is forecast to slow a little next year, we’re still looking at predictions of around 5% per year, which I reckon is just fine. It might be, however, that some of the share price fall has been down to investors taking some profit in the light of that.

Global acquisition

Whatever investors are doing, WPP itself is taking advantage of bargains when it sees them, and has just announced the acquisition of “a majority stake in ARBA, a digital consultancy“. The firm is based in Hong Kong and “specialises in digital strategy and has strong expertise in the financial services industry” — and it counts Prudential and Hang Seng Bank among its clients.

The deal, done via wholly-owned subsidiary Ogilvy & Mather, expands WPP’s Far East presence  — and with annual revenues of almost $1.6bn from the greater China region, that can only be a good thing.

It also boosts my confidence in its progressive dividends, which look set to yield 4.3% this year and 4.5% next, while being around twice covered by earnings.

On a forward P/E of only 11.5, dropping to 11.1 on 2018 forecasts, I can only see a bargain here.

Top bank?

This doesn’t mean I’m not happy with my holding in Lloyds Banking Group (LSE: LLOY).

But some folk are starting to get a bit skittish about the prospects for Lloyds — and I have to agree that there’s risk involved, coupled with relatively poor clarity for the banking sector, and that makes me think it is perhaps not the same sure-fire investment that I see in WPP.

Having said that, I was happy enough with October’s Q3 results, which included an 8% rise in underlying profit for the nine months, to £6.6bn. The quarter was boosted by organic growth and by the acquisition of MBNA. Capital position looks good, with the bank telling us its “asset quality remains strong” despite a £539m impairment charge, and we saw a CET1 ratio of a very healthy 14.9%.

That was reinforced by November’s Bank of England stress test (which this year included the simulation of rapidly rising interest rates, unemployment, and falls in property prices and GDP). Lloyds came through it just fine, and there’s no capital action needed as a result. 

Economic pressure

The risk comes from the declining economic outlook for the UK as the day of Brexit gets ever closer, and that’s likely to put pressure on the banking sector — and bad loans have already started rising at Lloyds. In turn, that could dampen future dividend prospects.

But I see far more pessimism than that already built into today’s 66p share price, and on a forward P/E of only 8.3 and with well-enough covered dividend yields of better than 6% on the cards, I still see Lloyds as a buy.

The FTSE 100’s best

I’d certainly include WPP and Lloyds among the FTSE 100 cash cows that I think deserve serious consideration for any long-term portfolio. And if you want to hear of some more great ideas to accompany them, check out our special report, The Fool’s 5 Shares to Retire On.

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Alan Oscroft owns shares inLloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Is IG Group Holdings plc a falling knife to catch after sinking 10% today?

IG Group

Shares of FTSE 250 online trading firm IG Group Holdings (LSE: IGG) fell by as much as 11% this morning. The fall was triggered by a statement from the European Securities and Markets Authority (ESMA), detailing tough plans to introduce leverage limits for retail clients.

IG offers spread betting and contracts for difference (CFD). These allow investors to trade contracts such as the FTSE 100 and exchange rates with only a small ‘margin’ payment. This is often less than 1% of the value of the underlying derivatives contracts.

The concern among regulators is that retail traders don’t always understand the size of the losses they may face.

What’s changed?

In December 2016, UK regulator the FCA announced plans for restrictions on leverage for retail clients. This caused a major share price crash for IG and its sector rivals. Strong recent trading meant that the shares had largely recovered before today, but the ESMA proposals are tougher than those from the FCA.

ESMA is suggesting a ban on certain binary products and leverage limits of between five and 30 times, compared to the FCA’s suggestion of 25 to 50 times. So the potential impact could be greater than expected.

A buying opportunity?

IG Group is the market leader in this sector in the UK. So it would be my choice as a potential recovery buy, following today’s fall.

In a statement issued today, the company says it is taking steps to reclassify as many of its investors as possible as professional, rather than retail investors. Professionals aren’t expected to be subject to the same restrictions and IG believes half of its clients, in terms of revenue, could qualify as professional.

The firm says the potential impact is “difficult to predict” but believes the impact of the ESMA plans on historic revenue would have been “less than 10%”. What the firm doesn’t say is how much of an effect this would have on the firm’s historic profits.

However, it is already taking steps to diversify and restrict the sales of riskier products. After today’s fall, the shares trade on a forecast P/E of 14 and a prospective yield of 5.1%. Given the group’s strong balance sheet and market-leading position, I’d rate the stock as a buy.

One Woodford stock I’d consider

Retail-focused property group NewRiver REIT (LSE: NRR) has seen the value of its stock fall over the autumn. But the shares rebounded sharply after recent half-year results were released, suggesting the sell-off may have gone too far.

The Neil Woodford-backed firm said that funds from operations rose by 8% to £26.5m during H1. Occupancy remains high at 97%, and like-for-like rental income rose by 0.9%, excluding losses resulting from the BHS administration. Including the impact of this setback, like-for-like rents fell by 0.4%, which seems acceptable to me.

The group has recently completed a refinancing and fundraising which should reduce debt costs and provide cash for growth. Loan-to-value is just 25% and the company says it will remain below 40% as fresh cash is deployed.

‘Under the radar’ income?

For shareholders, NewRiver stock offers an attractive forward yield of 6.2%.

Although the stock does trade at a 15% premium to its book value of 297p — reducing downside protection — I believe it remains worth considering as an income buy.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Two investment trusts you might regret not buying in 10 years

City of London office blocks

Investment trusts have been around in one form or another for more than 100 years and there’s a good reason why these instruments continue to survive today. 

They offer investors exposure to all different types of assets, from property to airplane leases, and are managed by experienced professionals. With such an eclectic range of assets on offer, they are great tools to use to diversify your portfolio. 

Profit through diversification 

The Henderson Alternative Strategies Trust (LSE: HAST) is a great example. This company has a broad investment mandate and aims to exploit “global opportunities not normally readily accessible in one vehicle” with the goal of constructing a “diversified, international, multi-strategy portfolio which also offers access to specialist funds including hedge and private equity.

Henderson’s broad mandate means that the instrument offers excellent diversification away from traditional stocks. Over the past five years, shares in the trust have outperformed the broader market returning 29.6% compared to the FTSE 100’s return of 27% excluding dividends. 

According to the latest set of figures from the company, net asset value per share increased by 10.8% for the year to 30 September to 335.4p. So, based on these numbers, at the time of writing the shares are trading at a discount to NAV of 12%. 

As well as managing a well-diversified portfolio, management is also committed to returning cash to investors. At the beginning of the year, it initiated a tender offer to acquire 10% of the trust’s outstanding shares — the second such tender in three years. Also, the company increased its regular dividend by 25% to 4.75p alongside full-year figures, giving a yield of 1.3%. 

Overall, if you’re looking to add some diversification to your portfolio for the next 10 years, Henderson could be the right option for you. 

Top small-cap picks 

Another trust you might regret not buying 10 years from now is the Rights & Issues Investment Trust (LSE: RIII)

It invests in UK small-caps. Over the past year, as small-caps have rallied, shares in the trust have gained 24%. The portfolio is dominated by three top holdings, RPC Group, Treatt, and Scapa Group, which together account for just over 40% of the portfolio. This concentration might put off some investors, but over the past few years, all three of these companies have powered ahead, and it looks as if management has made the right decision betting on their success. 

Growing with the business

Going forward, it looks as if it will make an excellent holding for your portfolio. Shares in the trust are currently trading at a discount to NAV of 12.6% (NAV 2,424p), and management is working to reduce this discount via a share buyback. For the six months to the end of June, Rights & Issues had spent £5.9m to acquire 4% of its outstanding shares. As well as the buyback, management is returning cash via the dividend. Based on last year’s numbers, the shares support a dividend yield of around 2.4%.

All in all, if you’re looking for an investment trust that’s not afraid to take big bets on exciting small-caps, Rights & Issues might be for you. 

Get rich the easy way 

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended RPC Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Why I’d buy this ‘secret’ turnaround stock over HSBC

HSBC Lion, London

After crashing to 417p, the lowest level printed this decade, shares in HSBC (LSE: HSBA) have put in a strong performance since the lows of mid-2016. 

Indeed, at the time of writing, shares in the global banking giant are trading at around 750p, up approximately 80% from the lows. 

Several factors have helped the bank’s recovery. Weak sterling has helped improved earnings per share, as an improving global economy, cash returns to investors, and rising interest rates have all helped improve sentiment towards the global banking sector. 

Further growth ahead 

With several tailwinds working for HSBC, City analysts expect the bank’s earnings per share to return to growth this year, breaking a multi-year trend of falling income. 

For the year ending 31 December, analysts are forecasting EPS of 52.7p on a pre-tax profit of £14.8bn. For 2018, further growth is expected. Analysts have pencilled in earnings growth of 4%. As well as steady earnings rises, shares in HSBC also offer a dividend yield of 5.2%

However, following the company’s rapid share price rise over the past year, the stock now looks expensive. The bank’s forward P/E of 13.9 is around a third higher than the financial services sector average of 10.4. 

Considering HSBC’s premium valuation, I’d sell the bank in favour of ‘secret’ turnaround stock Goodwin (LSE: GDWN)

This engineering group has, like the majority of its peer group, seen its earnings collapse following the oil & gas industry slump that’s been unfolding since 2014. After hitting a high of £19m in 2014, net profit slumped to just £6m for fiscal 2017. Over the same period, EPS fell by 70%. 

But it looks as if this slump is only temporary, and I believe that Goodwin could be a better buy than HSBC as a result. 

Rising profits 

According to its interim results release for the six months to 31 October, published today, some green shoots are starting to appear in the company’s growth outlook. Pre-tax profit ticked higher to £6.1m from £6.05m year-on-year. Commenting on the rest of the year, management noted that “we expect to see the Group profitability for the second half of the year starting to move forward again” thanks to an improvement in trading. 

Even though no City analysts are covering the company, I believe that this could be just the start of its comeback.

Benefitting from global trends 

The global oil & gas market is showing signs of growth, and as companies start to spend again, Goodwin’s earnings should make a recovery. 

Since 2015, according to consultancy Wood Mackenzie, almost $1trn has been removed from projected global capex plans thanks to lower oil prices, hitting oil service companies like this hard. However, the consultancy expects spending to rise 15% this year for both unconventional and deepwater projects compared with 2017 levels. A separate survey from Barclays forecasts an 8% year-on-year rise in global upstream spending in 2018. 

A pick-up in spending will helpfully translate into revenue and earnings growth for Goodwin. As the company’s recovery gains traction, I believe that it could be a better buy than HSBC. 

Not interested in Goodwin? 

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Goodwin and HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.