Why the Barclays share price could be the FTSE 100’s biggest bargain

A stack of credit cards piled on top of each other

Nothing seems to convince the markets that Barclays (LSE: BARC) is a good buy these days, and its share price remains flat. In fact, with the FTSE 100 having been on a bit of a surge of late, it makes the Barclays share price performance look even lamer — it’s lagged the index by 11% since the end of March.

Boss fined

News earlier this month that the bank’s chief executive, Jes Staley, has been fined £640,000 for his part in trying to uncover the identity of an anonymous whistleblower won’t have helped boost investor confidence. But the event hides what I see as clearly good news. Bringing to an end the investigation by the FCA and the PRA into the affair, it’s the only penalty levied — Barclays itself has escaped any sanction.

If you’re worried about any hardship befalling Mr Staley, his total penalty (including £500,000 already cut from his 2016 bonus by the bank) amounts to only a little over a quarter of his total remuneration. And with no further restrictions, Barclays seems set to continue to benefit from his services, which is surely a good thing — despite this blotting of his copybook, I rate him highly as a banking boss.

Barclays’ share price weakness is surely partly down to the loss it recorded for the first quarter, which was hit by a mortgage mis-selling probe in the US and further costs associated with the UK’s PPI scandal. But there’s a solid underlying trend which shows, to me at least, that Barclays has a revamped core business that I think is set to deliver years of solid returns.

That includes the bank’s forecast return to paying solid dividends, which are expected to yield 3.9% by 2019. Being very well covered by earnings, I see that as just a start. With forward P/E multiples of around nine to 10, I see one of the FTSE 100’s best bargains.

Buy the Footsie?

Speaking of dividends, I reckon the FTSE 100 is in one of the most attractive periods for income investors that I’ve seen in decades. 

Typically yielding around 3.5% on average, London’s top index looks set to deliver 4.4% this year. That’s according to AJ Bell’s Dividend Dashboard, which provides quarterly assessments of the state of the FTSE 100’s dividend prospects. And wouldn’t you want a share of the £87.5bn that’s apparently earmarked to be handed over to shareholders this year? Especially when interest rates on savings are so woefully low?

Before you pile in to the biggest yields, you do need to be a tad cautious as some of the leaders are perhaps losing a little of their strength right now.

Marks & Spencer has just delivered a 6.9% yield. While I think there’s a good case to be made for an investment, cover by earnings of under 1.5 times in such a competitive and erratic industry makes me think there could be some weakness here.

The UK’s big housebuilders are offering yields of 8% to 9%, which are not as well covered as they have been. While I don’t see any collapse in these dividends, we could be in for a period of stagnation as earnings growth falls to more modest long-term rates.

But for long-term income, if you can benefit from periods of lower share prices and unusually high dividend yields, you’ll effectively be locking in today’s discount for years to come.

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Our top analysts have highlighted five shares in the FTSE 100 in our special free report “5 Shares To Retire On”. To find out the names of the shares and the reasons behind their inclusion, simply click here to view it immediately with no obligations whatsoever!

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays. 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.

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They’re all saying bitcoin is the new gold. Here’s why they’re wrong

A depiction of the cryptocurrency Bitcoin

I shared my thoughts recently on why bitcoin is an abject failure as a currency. It’s too unstable and erratic, plus people need to know the pound in their pocket is going to be worth pretty much the same today, tomorrow, and next year.

On top of that, the US Justice Department has commenced criminal investigations into the possibility that traders might be manipulating the price of bitcoin and other cryptocurrencies. And we surely don’t need reminding of the punishments meted out to those banks that tried much more subtle manipulation in the Libor rate scandal of 2012.

The fact that bitcoin really doesn’t work like a currency is a conclusion that more and more commentators are reaching, as the intangible stuff keeps on gyrating in value. From trading at more than $19,000 per bitcoin at its peak, we’re looking at only around $7,500 today. 

So why is the investment world moving towards seeing bitcoin as akin to gold? There are some striking similarities.

Firstly like gold, there’s a finite supply of bitcoin. In fact, the most that can ever exist is limited by its blockchain technology. And that technology, at least in theory, adds a layer of security. It allows bitcoins to be traced to their true owners in a way that gold rarely can — all gold is essentially the same, and it’s easy to melt down and remove any markings.

There’s also a ready market for bitcoin, and it can be bought and sold with relative ease. And not being a heavy physical thing, it’s easier to carry around and potentially harder for authorities to control — you can carry far more value in bitcoins on your phone that you can in gold coins in your pocket.

Not so good

But I think some of these similarities are superficial and not as attractive as they might at first seem.

Take the supply. Sure, there might only be a finite supply of bitcoin itself, but we’re already seeing many alternatives popping up to take advantage of cryptocurrency mania. Who knows where that will end? And that technology is partly restrained by today’s computing limits — and surely only a fool would expect that not to continue to advance dramatically.

The tangibility of gold is also, I reckon, actually a benefit. You can see it, touch it, weigh it. And unless you have access to some top-end nuclear technology, there’s not a lot you can do to destroy it — and that certainly can’t be said for bitcoin’s magnetic tweaks on a computer disc.

The physicality of gold doesn’t have to be a hindrance either. It’s easy enough to take certificated ownership of gold without ever seeing the metal, and trade it that way.

But the real hurdle in the way of bitcoin being seen as a gold substitute is tradition. Everyone understands gold and our species has been hoarding it for millennia — and you can put on a far more impressive bling display with gold than you can with bitcoin.

So no, the multitudes on Earth are not going to give up on gold and invest in bitcoin which, to my mind, remains a lousy and very risky investment.

So should you buy gold instead? I say no, because gold doesn’t create any new wealth. For that, you need part ownership in productive companies.

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2 dirt-cheap growth dividend stocks I’d buy with £2,000 today

Even though Robert Walters (LSE: RWA) continues to go from strength to strength in international climes, market-makers still remain less-than compelled by the stock’s earnings picture.

Sure, its share price may have risen 50% over the course of the past 12 months. But a forward P/E ratio of 14.9 times, below the accepted benchmark of 15 times which indicates great value for money, suggests that the FTSE 250 firm remains undervalued by the market.

The specialist recruiter underlined its impressive momentum when it advised in April that net fee income jumped 17% at constant currencies between January and March, to £88.5m. While income rose 6% in the UK, rises of 11% in Asia Pacific and 32% in Europe put this respectable increase into the shade.

Robert Walters has seen earnings surge by double-digit percentages in previous years but, reflecting the stresses in its home marketplace as the economy slows, City boffins are expecting growth to cool to 4% this year before accelerating again next year — an 8% rise is predicted for 2019.

Dividends have grown by 123% over the past five years and the Square Mile expects payouts to keep expanding, albeit at a slower pace than previously. Last year’s 12.05p per share reward is predicted to step to 13.8p in the present period and again to 15.3p the following year.

These figures may be handy rather than spectacular, the projections yielding 2.1% and 2.3% respectively. However, Robert Walters’ brilliant progress in abroad makes it a great bet for those seeking strong and sustained dividend increases year after year.

Open the door to terrific returns

Unlike Robert Walters, Tyman (LSE: TYMN) has endured a much more tumultuous time in 2018 (or since the autumn, in fact) as it has suffered a combination of rising costs and flagging performance on the other side of the Atlantic.

And the door and window parts manufacturer flagged up some of these problems again this month, advising that “input costs, particularly for metals, remain volatile.”

However, there was still plenty to cheer in the latest trading release. Acquisition activity has seen it build a robust foothold in North America and, with the business noting that these markets “continue to expand,” sales at the AmesburyTruth division have risen since the start of the year. And what’s more, its SchlegelGiesse arm has experienced an uptick in its order book from Europe, Middle East, Africa and India (EMEAI) countries, it said.

City analysts are thus predicting further earnings growth in the near-term — rises of 2% and 11% are forecast for this year and next — and this feeds into expectations of more dividend progression as well.

The company has almost doubled the annual payout during the last half-decade, and it is expected to raise the dividend to 11.8p per share from 11.25p in 2017, and again to 12.7p in 2019.

These figures yield a chubby 3.6% and 3.9% respectively. When you throw an ultra-low forward P/E multiple of 12 times into the bargain, I reckon Tyman provides plenty of bang for your buck.

Buy-And-Hold Investing

Our top analysts have highlighted five shares in the FTSE 100 in our special free report “5 Shares To Retire On”. To find out the names of the shares and the reasons behind their inclusion, simply click here to view it immediately with no obligations whatsoever!

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Royston Wild 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.

No retirement savings at 60? Here’s how the FTSE 250 could help

For many people, the FTSE 250 (INDEXFTSE:MCX) is seen as a relatively risky option when it comes to investing for retirement.

For starters, it lacks the income return of the FTSE 100, having only a dividend yield of 2.7% versus 3.9% for the main index. And with it being made up of mid-caps, which arguably have less global exposure and have reduced size and scale compared to their FTSE 100 counterparts, many investors may have overlooked the index.

However, the FTSE 250 could generate impressive returns for a variety of investors. Here’s why it could even be a better buy than the FTSE 100.

Impressive returns

Over the last five years, a £1,000 investment in the FTSE 250 would have delivered a capital return of £460. That’s significantly higher than the £180 generated by the FTSE 100. In fact, in the last 20 years, the mid-cap index has generated capital growth of 267%. Since the large-cap index is up by 33% over the same time period, it is clear that even with an income return that is 120 basis points higher, the FTSE 100 does not seem to offer the same level of total return as its little sibling.

Bright prospects

Certainly, the mid-cap index is more focused on the UK economy than its large-cap peer. As a result, many investors may argue that it faces a period of significant uncertainty, with Brexit having the potential to hurt the performance of the UK economy.

While this cannot be ruled out, the reality is that investors have had a considerable amount of time to factor-in the risks from Brexit. As a result, many UK-focused stocks already trade on low valuations which may offer wide margins of safety. And with talks between the UK and EU seemingly progressing in recent months, a ‘doomsday’ scenario may be unlikely. That’s especially the case since economic forecasts during the Brexit period have so far proved to be relatively inaccurate, with the UK economy holding up a bit better than many forecasters expected.

Volatility

One area where the FTSE 250 lacks appeal versus the FTSE 100 is regarding volatility. Put simply, its price level is generally more volatile than its large-cap peer, and this can lead to larger paper losses. For investors who lack a long-term time period when investing, this could be a cause for concern.

However, even if an investor begins to buy units in a FTSE 250 tracker fund at age 60, they are still likely to have a significant amount of time before retirement. In many cases, people are working into their late 60s and beyond, and this could provide sufficient time for a drop in the index’s price level to be recovered. As such, and while the FTSE 100 continues to appeal, its junior sibling could prove to be the real star over the coming years.

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Peter Stephens 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 I expect the BP share price to keep rising

I remain bullish on the BP (LSE: BP) share price despite this week’s 5% retreat. I’ll explain why I’m so keen in a moment. But first I’d like to take a look at a smaller dividend stock that’s fallen sharply today.

FTSE 250 gold miner Centamin (LSE: CEY) fell by 17% in early trade on Friday. This Egypt-focused firm is profitable, pays a generous dividend and has net cash of more than $400m. So what’s gone wrong?

Less gold than expected

On Friday the firm said that ore grades in the current zone of its Sukari mine were “below budget”. What this means is that the rock being dug out of the mine at the moment contains less gold than expected.

Ore grades are expected to improve during the second half of the year, but the setback has forced management to cut their forecasts for the year. Gold production in 2018 is now expected to be between 505,000 and 515,000 ounces, compared to previous guidance of 580,000 ounces.

Costs will also be higher. The firm now expects an all-in sustaining cost of between $875 and $890 per ounce, up from $770/oz. previously. Full-year profits will depend on the price of gold, so earnings and the dividend won’t necessarily fall as far as these numbers suggest.

Falling knife or value buy?

I’m a bit surprised that today’s warning has come just three weeks after the firm’s first-quarter results, in which the original guidance was confirmed. I’d like to know what’s changed in such a short time.

However, this company does have a fairly good track record of delivering on its guidance. And my calculations suggest that if the price of gold averages $1,300/oz. this year, Centamin could still deliver profits close to current forecasts.

On this basis, I estimate that the stock trades on a forecast P/E of about 14, with a prospective dividend yield of around 5%. It’s not without risk, but at this level I’d suggest Centamin could be a speculative buy.

BP could be safer

If you’re looking for a reliable 5% yield, I’d be more inclined to choose FTSE 100 giant BP.

The price of a barrel of Brent crude oil has risen by about 15% to $77 over the last three months, driving oil stocks higher. BP shares have risen by about 17% over the same period.

However, oil stocks have fallen back this week on news that Russian and Saudi Arabian oil producers are discussing a possible increase in production.

This could cause oil prices to fall, but I don’t think investors need to be too concerned. The 2016 agreement between Russia and OPEC to cut production has been remarkably successful. I believe that any increase in production will be designed only to prevent the oil price spiking higher, which could weaken demand for oil.

I’d buy BP today

BP is expected to report an underlying profit of $10.2bn this year, up from an equivalent figure of $6.2bn in 2017.

The group’s dividend is now covered comfortably by earnings. Indeed, recent comments from chief financial officer Brian Gilvary suggests that a dividend increase could be on the cards later this year.

As things stand, BP shares trade on 15 times 2018 forecast earnings, with a dividend yield of 5.2%. I’d rate this as a buy.

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Our top analysts have highlighted five shares in the FTSE 100 in our special free report “5 Shares To Retire On”. To find out the names of the shares and the reasons behind their inclusion, simply click here to view it immediately with no obligations whatsoever!

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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.

Should investors keep the faith with FTSE 100 dividend giant SSE?

Finding companies in the FTSE 100 offering huge dividend yields isn’t a problem right now. Finding companies that are absolutely guaranteed to maintain these bumper payouts? That’s arguably a little more challenging.

Today I’m turning my attention to FTSE 100 utility giant SSE (LSE: SSE) and its latest full-year numbers for the year to the end of March. With a merger and tariff caps on the horizon, should income investors stick with the company?

Profits down

In line with its statement on 29 March, adjusted pre-tax profit fell 6% to £1.45bn thanks in part to an increase in capital expenditure.

On a reported basis, pre-tax profits sank just under 39% to £1.09bn after last year’s numbers included the sale of its minority stake in Scotia Gas Networks (SGN). 

Commenting on results, Chairman Richard Gillingwater reflected that the last financial year “presented a number of complex challenges” for SSE which are likely to continue into 2018/19. He did, however, go on to emphasise that today’s numbers were ahead of those expected when the year began.

Looking ahead, the next financial year is likely to be dominated by the proposed merger of its household energy business with peer Npower. If given the green light by the competition watchdog, the deal will complete in Q4 of 2018 or Q1 of 2019.  

The likely introduction of a temporary cap on standard variable tariffs by the government later in the year — designed to protect vulnerable people from high energy bills —  will be another hurdle to overcome, particularly as a relatively large proportion of its customers are on such tariffs. 

On top of this, the £14bn cap energy juggernaut also expects to devote approximately £1.7bn to capital expenditure in 2018/19, rising to “around £6bn” in total over the next five years.

Given the above, it’s unsurprising if the majority of SSE’s owners were focused on the short-to-medium term outlook for dividends provided in today’s report. 

Safe for now? 

At 94.7p per share, today’s recommended full-year payout was 3.7% up on the previous year and covered 1.28 times by profits. While unlikely to raise pulses, this hike was more than that seen in recent years and should provide some reassurance that dividends are safe for now.

In the next financial year, SSE has stated that it will be recommending a full-year return of 97.5p per share — a 3% increase on 2017/18 and “broadly in line” with inflation. The payout will then fall to 80p per share in 2019/20 “to reflect the impact of changes” at the company. For the next three years (to 2022/23), dividend increases that “at least keep pace” with retail price inflation are expected.

While the guidance on dividends was useful, that fact that SSE’s shares were flat in early trading this morning suggests that the market greeted today’s report with something approaching apathy. The lack of price action means that shares continue to trade on 12 times earnings — not dissimilar to top-tier rival Centrica.

While I certainly wouldn’t begrudge anyone holding a traditionally defensive utility stock as part of a fully diversified portfolio, I continue to believe that the hyper-competitive nature of the energy market — SSE lost 430,000 customers over the reporting period — and susceptibility to political interference means there are far more tempting opportunities elsewhere in the FTSE 100 right now.  

SSE’s holders needn’t sell up after today’s news, in my opinion, but nor should buyers rush in.

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Our top analysts have highlighted five shares in the FTSE 100 in our special free report “5 Shares To Retire On”. To find out the names of the shares and the reasons behind their inclusion, simply click here to view it immediately with no obligations whatsoever!

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Paul Summers 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.

2 super growth stocks that could help you make a million

A colourful firework display

GVC (LSE: GVC) is one of my favourite stocks on the London market today. The value this business has been able to create for investors over the past decade is just second to none.

Indeed, according to my figures, the company has produced a total return of 18.9% per annum for shareholders since 2008, that’s enough to turn an initial investment of £10,000 into £56,470, and I believe the group can maintain this track record. 

Growing the business

Since inception, GVC has grown through acquisitions, and its most significant deal to date is the purchase of high-street bookmaker Ladbrokes at the end of March. According to a trading update published today, the merger is going well and is now expected to generate savings of £130m per year by 2021, from £100m a year expected previously.

This is not the only bright spot in the update. Total net gaming revenue (NGR) for the period 1 January to 20 May 2018 rose 7%. Online gaming is leading the way with online NGR rising 18% year-on-year in constant currency. 

Unfortunately, gaming revenue from GVC’s UK retail business declined 5% thanks to the cancellation of 12% of horse racing fixtures during the opening months of 2018. And while the company notes the new £2 limit on high stakes betting machines will dent income, management is more excited about prospects in the US where the sports betting market is tipped for take-off after a Supreme Court ruling this month. The group is already the leading B2B provider of sportsbook technology in Nevada, giving it a strong base from which to grow into the rest of the US market. 

But despite the opportunities in the US market and the merger with Ladbrokes, shares in GVC currently appear undervalued. In 2018 the online gambling giant is predicted to report profit growth of 41%, placing the shares on a forward P/E of 14.1. Meanwhile, the shares support a dividend yield of 3.6%. 

So, despite the headwinds to its operations here in the UK, as online gambling continues to gain popularity around the world, I expect shares in GVC will continue to surge. 

Cash cow 

Another stock that I believe has the potential to make you a million is homebuilder Redrow (LSE: RDW). Over the past 10 years, shares in Redrow have produced a total return of 13.7%, which like GVC has been enough to turn an initial investment into a substantial sum. 

And as the company continues to capitalise on the rising demand for affordable housing in the UK, I believe this is set to continue. 

As my Foolish colleague Roland Head recently pointed out, Redrow is one of the better bets in the homebuilding sector because the company is managing to offset some of the cost pressure impacting peers. During the first half of this year, the firm said operating profit rose by 22% to £175m, and its operating profit margin rose to 19.7%, compared to 19.5% last year. Other firms in the sector have been reporting contracting margins as cost inflation bites. 

Even though Redrow’s profits are still expanding, the share trades on a 2018 forecast P/E of 7 with a forward yield of 4.6%. This yield isn’t as generous as some of its peers, but the payout should be covered 3.3 by earnings for 2018. 

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended GVC Holdings and Redrow. 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 battered 8% yielder could still make you a fortune

The rampant investor demand we saw for Britain’s listed housebuilders in 2017 has still failed to materialise in 2018 as fears over the housing market have gathered pace.

Take Crest Nicholson Holdings (LSE: CRST), for example. The FTSE 250 business saw its share price swell more than 20% last year as predictions that the housing market would collapse in the wake of the EU referendum fell flat.

However, signs that the slowdown in the property market is worsening have seen Crest Nicholson erasing all of the gains it had made since the beginning of 2017. And a poorly-received trading update last week caused investors to flee en masse, causing its market value to fall by double-digit percentages on the day.

There is no doubt that the earnings outlook has become a lot less assured for the housing specialists of late. Still,  I believe that share price weakness over at the likes of Crest Nicholson represents a brilliant buying opportunity as the long-term profits picture remains largely robust.

It’s not all bad

In its latest trading release it said that thanks to a combination of flat homes prices and building cost inflation running at 3% to 4%, margins for the full year would clock in at around 18%. This is at the lower end of its target ranging between 18% and 20%.

Crest Nicholson also advised that “sales at higher price points have proved to be more difficult to achieve,” caused by “the greater interdependency of higher-value sales with transactions in the second-hand market where activity has been more subdued and property chains have been taking longer to complete.”

It was obvious that the impact of economic and political uncertainty on the property market would cause earnings at the likes of Crest Nicholson to take a whack as buyer demand moderates. However, first-time buyer appetite is still strong enough to keep profits at Britain’s builders afloat, and this is likely to remain the case on the back of supportive mortgage rates and the government’s Help To Buy scheme.

Crest Nicholson underlined this theme last week when it advised that forward sales for 2018 (including year-to-date completions) were up 11% from the corresponding period last year, reinforcing its prediction of a 15% year-on-year revenues improvement.

Simply put, Britain’s shortage of housing stock continues to drive demand for newly-erected properties. And with population growth likely to keep outstripping build rates due to ongoing government inaction, I am backing Crest Nicholson to still deliver solid shareholder rewards over a longer time horizon.

Look at those yields!

My optimism is backed up by City analysts who expect it to rebound from an anticipated 2% earnings fall in the fiscal period to October 2018 with a 12% jump next year. Margins may be under pressure at the moment, but in the long term these will recover once buyer appetite eventually improves.

And these estimates lead to predictions of further meaty increases in the annual dividend.  Crest Nicholson — which has raised payouts fivefold during the past five years — is expected to increase last year’s reward of 33p per share to 33.3p in the current period and again to 37.3p in fiscal 2019.

These figures yield 7.5% and 8.4% respectively. When you combine this with the company’s ultra-low valuation, its forward P/E ratio standing at 6.8 times right now, I reckon the builder is a very attractive income share to buy today.

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Royston Wild 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.