Three ISA stock ideas for experienced investors
The commodities sector is a challenging place at the moment, but we believe mining giant Rio Tinto is fairly well placed to ride out the current downturn. Compared to its peers it has some of the lowest costs of production due to economies of scale.
In February Rio Tinto reported an annual loss of $866m, from a profit of $6.5bn the previous year. It also announced it would abandon its progressive dividend policy, which had seen it maintaining or increasing the dividend in recent years – going forward it will take a more flexible approach. However, investors should acknowledge that excluding impairments, write-downs and derivatives losses, an underlying profit of $4.5bn was made last year. The group plans to cut costs by a further $1bn in 2016 and 2017, and reduce capital expenditure by $4bn and $5bn respectively.
We recommend Rio Tinto as a ‘buy’ for contrarian investors willing to accept a higher level of risk and hoping for a longer term recovery in the commodities sector.
James Fisher and Sons
It provides a range of services to the marine, oil and gas and nuclear industries. While some investors might be put off by its exposure to the oil and gas sectors, we believe the group has long term attractions.
Although its latest annual results show a fall in pre-tax profit from £49.2m to £46.2m, the cost-saving measures it has implemented at its offshore business have helped to mitigate potential losses, and the company is confident of future growth as a result of good performance by its other three divisions. The shares trade on 16 times 2016 earnings, with a prospective yield of 2.7%.
We have long been fans of this company as it has built up expertise which limits competition. This is an investment idea for those looking for a company that provides niche services around the globe.
Retail investors will be familiar with their photo booths which can be seen in locations around the country, but they may not realise just how cash-generative the business is. In addition to its photo booths the group has a range of other operations, including print and photographic equipment, copiers, express print services, laundry machines and even children’s rides. Its main operations are in France, Germany, Japan and the UK.
Photo-Me International has concentrated in recent years on cost-saving measures and new products, including futuristic booths which print 3D figurines. The company is expanding geographically into South Korea, Spain and Poland, while a new ID card facility launched in Japan could benefit from demand for 30 million new identity cards. The company is also expanding its laundry machines, mostly outside supermarkets, after encouraging trials in France and Belgium.
Interim results in December reported a pre-tax profit of £25.8m, and the dividend was raised by 10% to 2.34 pence. An update in February highlighted that trading in Japan is well ahead of market expectations, and pre-tax profits for the end of the year are now expected to be in excess of £40m.
This latest positive update has pushed the share price higher, with the potential of more to come. We would class the shares as a higher risk ‘buy’ idea for a balanced portfolio.
Graham Spooner is an investment research analyst at The Share Centre