Six last minute ISA stock picks
There are just a few days left until the end of the tax year to use up your £15,240 ISA allowance. YourMoney.com lists six single stocks selected by fund managers as a last minute pick for your portfolio.
Micro Focus International
Jeremy Lang, founder and fund manager at Ardevora Asset Management, says this is a stock he has owned for a long time and is a “steady plodder”. Although it is a technology stock, Micro Focus doesn’t do anything flashy, he says. “It produces tools to help programmers deal with enormous amounts of legacy computer code embedded in the IT systems of big companies. It is a good, but somewhat dull business”.
He adds: “We were attracted to Micro Focus as we felt management behaviour had changed following an unsuccessful growth period from 2007 to 2011. A series of acquisitions did not work out well and investors headed for the exit. The long run of disappointments finally persuaded a disillusioned chairman to get more involved and set the business back on its boring path. Its share price has responded well to the absence of any new nasty shocks over the last three years and investor anxiety has been slowly dissipating.”
Stuart Mitchell, manager of the SWMC European fund, says for years he has been intrigued by the “strength of Orange’s franchise”. The outlook for the group appears to be improving in a number of important ways. “Management is working hard to reduce costs, but perhaps more importantly, European regulators have begun to acknowledge the industry has been weakened by fragmentation that long-term investment has been undermined.
“Notably, 4G investment is said to be three years behind the US. The regulatory burden is consequently easing somewhat, while at the same time the process of consolidation has begun to accelerate,” he adds.
Hugh Yarrow, manager of the Evenlode Income fund, says Diageo is a long-held stock within the portfolio. “Diageo is a leader in the alcoholic drinks market with a portfolio of strong brands such as Johnnie Walker, Guinness and Baileys. It also has a well-balanced portfolio in terms of exposure to developed and emerging markets.”
He adds that it’s been tough over the last few years in terms of operational performance as emerging market growth has slowed. “As a result, shares have underperformed and the stock offers a dividend yield of 3.4% – well supported by free cash flow. In our view, the long-term potential for dividend growth is strong (the most recent dividend increase was +5%). In the near-term, there are also some positive dynamics at play. Diageo’s US sales performance is improving and the recent fall in oil should provide a tailwind for US consumption growth. The US market represents more than 40% of its profit.”
Chris Hiorns, manager of the EdenTree Amity European fund, says that as a publisher, the rapid rise of the internet represented a serious challenge to companies like Wolters Kluwer – which had previously relied on print-based journals for a large proportion of its revenues. “The company has successively managed this transition, with over 80% of its revenue now coming from digital services – including more innovative and interactive products.”
He adds that Wolters Kluwer has strong market positioning providing information services to relatively stable industries – such as law, tax, accountancy and health. “While rising regulatory and compliance burdens are having a damaging impact on the profitability of the banking sector, it represents a market opportunity for Wolters Kluwer – which is helping provide solutions to financial companies to manage risks. The company is also well placed to avoid the headwinds generated from the slowdown in the China and emerging markets, with over 90% of its revenues generated in European and the US.”
Tim Crockford, co-manager of the Hermes Sourcecap Europe ex-UK fund, says Sartorius AG is “well placed to benefit from the ramp-up in biologics production. A market leader in single-use biologic drug fermentation technology, it will continue to grow as the mix shifts towards branded biological drugs, and when biosimilar (generics) start to make their way to market.”
He adds that this, combined with its high margins and increasing operational leverage as the business scales, will “continue to drive profitability and returns on capital,” justifying its premium rating as the company continues to surprise markets on the upside.
Nicolas Walewski, manager of the Alken European Opportunities and Alken Absolute Return Europe funds says he is ‘bullish’ on Danish international jewellery maker Pandora. “We visited Pandora’s operations in Thailand last month and its outlook is extremely strong, with growth fuelled by online and expansion into new categories. Pandora has been successfully focussing its energy on Europe and the US, while continued expansion in Asia will accelerate its growth even further.” Pandora has 19 stores in Singapore and 40 in China, which puts into context the huge growth opportunity for the company. Hong Kong is one of its most profitable franchises.
This stock trades on about 15x earnings, with a growth rate above 30% – which Walewski says is “incredibly impressive”. “It is one of our top holdings in our Alken European Opportunities and Alken Absolute Return Europe funds,” he adds.