Three ISA stock picks for the contrarian investor
Suitable for investors seeking growth and willing to accept higher risk
In the past Tullow Oil had a great exploration track record, but the plunge in the price of oil has changed the company’s and sector’s strategies as exploration no longer takes high priority. However, investors should acknowledge that since oil prices stabilised following the OPEC decision at the back end of 2016, it may give companies such as Tullow Oil the confidence to resume exploration.
As with other small and mid-caps in the oil sector, Tullow Oil took on too much debt to take full advantage of the increased oil prices; therefore, naturally, this stock is highly geared to the underlying price of oil owing to its high debt level making it suitable for the more experienced investor.
The company may not pay a dividend for a while as the focus is to deleverage the balance sheet, reduce costs and improve the free cash flow. However, interested investors should note that a material recovery in the price of oil should see a good rally in the share price.
Suitable for investors seeking growth and willing to accept medium to high risk
AVEVA is one of the world’s leading engineering, design and information management software providers, which supplies its services to a variety of sectors such as mining, oil & gas and other infrastructure-led sectors. These sectors are facing challenging conditions which will no doubt affect them as capital expenditures are falling. However, its potential lies with the fact a number of its customers are deploying more of AVEVA’s products to help generate efficiency gains which are helping to mitigate the wider weakness in the sector.
The group’s latest annual results show full year sales of £201.5m were down 3% from last year and slightly short of the market’s expectations. The firm also reported that pre-tax profits fell by 46% to £29.4m mainly due to one-off exceptional costs related to the aborted Schneider Electric deal and not helped by adverse currency movements.
Nevertheless, the group reported half year sales were up by 3% to £84.3m, assisted by sterling’s fall but the underlying operating numbers were impacted by continued weakness in the energy, commodity markets and marine markets.
Suitable for investors willing to accept medium to high risk
Our last recommendation is consumer electronics retail giant Dixons Carphone. The company is one of the latest victims of the quarterly FTSE Index reshuffle, it will be relegated from the top 100 index later this month following a drop off in its share price as a result of increasing competition within the sector and signs of weakness in the non-food retail sector.
Despite this, an update in January covering the run-up to Christmas beat expectations with a 4% rise in overall like-for-like sales. The company said Black Friday sales were the biggest ever and had been stretched across a week rather than just one day. This strong performance led the group to forecast an increase in full year headline profits to £475m-£495m, up from £447m last year.
Investors should appreciate that the firm’s continuous rapid innovation in consumer technology drives the steady flow of demand for new products and services such as 4G, higher resolution ‘smart’ television and the ‘internet of things’.
We believe the company has encouraging prospects due to the strong management and benefits of scale provided by the merger, but the risk level has increased as the full impact of the Brexit vote on the UK economy and consumer spending is yet to be seen.
Helal Miah is investment research analyst at The Share Centre