Every month, we ask our freelance writers to share their top ideas for shares to buy with investors — here’s what they said for December!
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What it does: Sage is a provider of cloud-based accounting and payroll software with a focus on small and medium-sized businesses.
By Edward Sheldon, CFA. Sage (LSE: SGE) has momentum at present. In its recent full-year results for the year ended 30 September, the company posted organic recurring revenue growth of 9% and earnings per share growth of 8%. And looking ahead, it said that it expects organic recurring revenue growth for this year to be ahead of last year with operating margins trending upwards.
One thing that Sage has going for it right now is that its solutions can help businesses lower costs and beat inflation. Small and mid-sized businesses tend to be a little behind on the digital transformation front. By automating accounting and payroll tasks, they can bring down costs dramatically and become more efficient and competitive.
Sage shares do have a higher-than-average valuation. This adds some risk to the investment case. However, I’m comfortable with the valuation given the company’s high level of recurring revenue and long-term growth prospects.
Edward Sheldon owns shares in Sage
What it does: Chemring Group manufactures a broad range of defence products and is a specialist in countermeasures technology.
By Royston Wild. Getting exposure to some classic safe-haven stocks could be a good idea ahead of what could be a tough 2023. I’d do this by buying shares in defence business Chemring Group (LSE: CHG).
In fact, I’d buy the FTSE 250 stock before full-year results on Tuesday, 13 December. I’m expecting news of further strong momentum that could lift its share price higher.
Chemring builds countermeasures technology, sensors, missile parts and other critical hardware to armed forces. The business is trading robustly as the geopolitical landscape hardens and defence budgets head northwards.
Latest financials showed its order book leap £190m in five months to £678m as of September. The company has stacked up more significant contract wins with the UK Ministry of Defence and US Department of Defense this year. I’m expecting demand for its products to keep climbing as the West responds to perceived threats from Russia and China.
Royston Wild does not own shares in Chemring Group.
What it does: Games Workshop produces fantasy miniatures and tabletop games concentrated around its Warhammer intellectual property.
By James J. McCombie. After a sizeable dip in its share price, Games Workshop (LSE:GAW) has abandoned its fantasy valuation and trades at a P/E ratio of around 19. That is a good deal for a company that has grown its revenues and net income by 17% and 21%, respectively, on average, over the last five years.
I don’t think Stranger Things being released in 2016 and this company’s revenue growth kicking off the next year is a coincidence. A fifth and final series of the TV series is coming, and that is possibly a concern. But, beyond that, social media sites continue to give niche and hobbyist activities — like painting miniatures — a large and connected audience.
The company responded to a cultural shift in interest and attitudes to its offerings with aplomb. I think it will continue to make the most of what is still a growing and intensely loyal customer base.
James J. McCombie does own shares in Games Workshop.
What it does: Drax Group is a UK-based company focused on renewable energy generation via biomass and hydroelectric energy.
By Gabriel McKeown. After Drax Group’s (LSE: DRX) impressive share-price growth over the last two years, things appear to have stabilised in 2022, with the stock up just 1.3% this year. Yet I believe this is a great time to buy the stock, due to its strong underlying fundamentals, and reduced valuation.
The company’s underlying fundamentals are strong, with good levels of free cash generation and reasonable profit margins. Additionally, turnover is forecast to grow by 26% next year, and earnings per share (EPS) is expected to increase by 267%. As a result, the current price-to-earnings (P/E) ratio of nearly 30, is forecast to fall to just 8 by next year.
Drax even offers a reasonable dividend yield of 3.3% that has been paid consistently for the last 16 years and has grown for the previous five. I, therefore, think this is a great investment opportunity, now that the share price has begun to stabilise.
Gabriel McKeown does not own shares in Drax Group.
What it does: Tesco is one of the world’s largest supermarket chains with thousands of stores across the UK.
By Charlie Keough. At the time of writing, shares in Tesco (LSE:TSCO) have had a far from impressive 12 months, falling by 15%. In 2022, the stock has fallen nearly 20%.
However, there are a few things that draw me to Tesco. Firstly, I deem it a relatively safe business. Of course, the supermarket isn’t bulletproof to the impact of surging inflation, as its share price reflects. However, there will always be, to an extent, demand for its products.
What I also like about the stock is its dividend yield. At just below 5%, this isn’t inflation-beating. However, it does offer me a better return than the FTSE 100 average.
Other than inflation, the business also faces pressures from rising competitors such as Aldi. However, Tesco has put things in place to counteract these, such as its Aldi Price Match. And with its dominant market position in the UK, I think Tesco shares could be a solid long-term buy for my portfolio.
Charlie Keough does not own shares in Tesco.
Howden Joinery Group
What it does: Howden Joinery is an award-winning designer and supplier of fitted kitchens for consumer households.
By Zaven Boyrazian. Howden Joinery (LSE:HWDN) is a vertically integrated business with a reputation for designing and supplying award-winning fitted kitchens to tradesmen across the UK and France.
The discretionary consumer spending slowdown doesn’t create a favourable environment for this enterprise. After all, new home sales are already beginning to slow, and home renovation projects are quite expensive. However, this short-term headwind may eventually turn into a long-term tailwind.
As families stay put for longer, kitchen renovation projects may increase in popularity, creating new opportunities for Howden Joinery to capitalise on. In fact, this trend already appears to be happening. Looking at its latest results, revenue over the first 11 months of 2022 has grown by 10.4% in the UK and 21.2% in France versus a year ago.
The current economic climate could worsen, slowing the group’s pace while introducing some volatility to the share price. But given its impressive track record and the continuous ageing of households, Howden Joinery shares look like long-term winners, in my opinion.
Zaven Boyrazian owns shares in Howden Joinery.
What it does: Hemel-Hempstead-based Britvic operates in the soft drinks manufacturing and distribution industry.
By Paul Summers: Britvic (LSE:BVIC) doesn’t get the pulse racing but that’s why I reckon it’s a great pick in the current economic environment.
November’s full-year results showed just how resilient trading has been. Revenue moved 15.5% higher and pre-tax profit jumped 45.3% thanks to growth in both the retail and hospitality channels buoyed by a boiling hot summer and the absence of Covid-related lockdowns.
At almost 14 times earnings, the stock isn’t a screaming bargain. However, I do think it’s a reasonable price to pay for a company that boasts a bumper portfolio of brands (including Robinsons, R. White’s and Tango), decent margins and improving returns on capital.
There’s a risk that consumers will switch to cheaper supermarket brands as purse strings continue to be tightened but this will surely prove a temporary headwind.
The 3.7% forecast dividend yield adds to the fizz.
Paul Summers has no position in Britvic.
Pets at Home
What it does: Pets at Home is the UK’s leading pet care business, selling products online and from 457 stores, many of which have vet practices and grooming salons.
By G A Chester. Pets at Home (LSE: PETS) fell 5% on its recent interim results. This took its one-year decline to 38%.
Sure, pre-tax profit was down 9%. But this is the company’s peak year of investment in its digital assets. The lower profit was expected due to this investment, and the current inflationary energy and freight environment.
Meanwhile, revenue was up 7%. Pets at Home continues to win share of the structurally growing pet care market. Management’s medium-term revenue target is £2.3bn, compared with £1.3bn last year. As revenue grows, and the current elevated level of investment falls away, profits should move significantly higher.
On the depressed share price, I can see potential for a strong total investment return — from capital gains and a dividend yield of over 4%. A decent Christmas trading update could set the ball rolling. However, there’s a risk the pet care market could prove less resilient than it currently appears to be.
G A Chester does not own shares in Pets at Home.
What it does: Victorian Plumbing is a leading online retailer of bathroom and other household accessories
By Christopher Ruane. Victorian Plumbing (LSE:VIC) is due to publish its full-year results in December – and I expect them to be strong. The company has already said that its financial year “finished positively with revenue, earnings, and cash flow all ahead of consensus market expectations.”
The retailer is continuing to book the sort of revenues it made during the pandemic, which was a huge step up from its prior levels. That could form a strong foundation for long-term profits.
There are risks. Victorian Plumbing has been building stockpiles to mitigate against supply chain issues, but that could hurt cashflow. Less consumer spending could hurt sales and profits.
But I expect long-term demand to be robust and the company has a large, growing customer base. It is already profitable and enjoys a net cash position. I have been taking advantage of its current share price to build my stake by buying more shares.
Christopher Ruane owns shares in Victorian Plumbing.
What it does: Diploma distributes industrial components. It operates through three main segments – controls, seals, and life sciences.
By Stephen Wright. I’m picking Diploma (LSE:DPLM) as my best British share to buy in December. The company recently released a trading report and it seems to me to be going from strength to strength.
Diploma appears to be growing its business well in two ways. The first is by acquiring other businesses and the second is by growing revenue organically.
Together, these resulted in revenues 30% higher than they were a year ago. Of that increase, 15% was organic growth.
The company is still reasonably small, with a market cap of around £3.5bn. As a result, I think it can do much more growing in the future.
While the stock isn’t cheap, I think the strong business results justify the high price tag. I own shares in my portfolio and I’d buy them at today’s prices.
Stephen Wright owns shares in Diploma.
What it does: Centamin is a leading gold producer. It owns and operates Sukari, Egypt’s largest gold mine.
By Andrew Mackie: The Centamin (LSE: CEY) share price looks as though it may finally have turned a corner. Delays and technical problems at its Sukari mine, which resulted in falling gold production, now seem to be behind it.
During Q3, gold production rose 23% on the same period in 2021. This increase was attributable to higher grades from both its underground and open pit operations, as well as ongoing productivity improvements.
As the global economy continues to weaken, and the fear of stagflation returns, I am of the view that a small percentage of my portfolio should be assigned to gold. Yes, the gold price has struggled over the last couple of years. However, if one compares it to its upstart competitor, Bitcoin, its price has held up relatively well.
Centamin is well placed to capitalise should gold prices move higher. Complementing Sukari, it has a number of exploration projects in the pipeline. It also possesses a rock-solid balance sheet with net cash and liquid assets of over $150m.
Andrew Mackie owns shares in Centamin.
The Motley Fool UK has recommended Britvic, Games Workshop, Howden Joinery Group, Sage Group, and Tesco. 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.
Motley Fool UK 2022