Income, Growth and Value stocks for your ISA

A variety of stock tips for your ISA with differing objectives.

Article updated: 5 March 2018 10:00am Author: Ian Forrest

As we approach the end of another tax year, investors are starting to question where they should put their money in order to utilise the tax benefits of their ISA. The biggest difficulty for most is deciding on their objective, in other words, are they investing for income, growth or value.

The difference between Income, Growth and Value stocks

There are clear benefits for each of those objectives. On a real top line basis, income stocks are companies that are slightly more established so don’t need to put cash back into their business, so instead they give it back to investors, most likely in the form of dividends.

Growth stocks, on the other hand, tend to use cash-flow to invest back into the business so offer investors the chance to join them on a journey. All the while, value stocks offer the savvy the chance to pick up a bargain, and are positioned where companies are priced less than the value of their assets or are at a valuation below their peers.

We don’t favour one of these investment objectives over another and instead believe a mixture of all of the above may offer those investing the diversification required in order to protect a portfolio as well as positioning themselves in case an opportunity arises. Based on that premise, below are a selection of our favourite companies that fall within these investing objectives:

Income stocks

GlaxoSmithKline

The defensive nature of this stock and the sector makes this research based pharmaceutical company a core holding for many portfolios. The share price fell back last year when the CEO suggested the potential for some large acquisitions, which naturally led to concerns that the dividend could be at risk.

However, Glaxo is a very cash generative company and is committed to paying dividends and returning capital through share buybacks. We are therefore viewing this fall back as an opportunity in terms of a more attractive entry point for income investors. Prospects from the group's R&D are promising and should help drive organic growth. Its increasing exposure to emerging markets means management remains hopeful for solid growth, up until at least 2020.

National Grid

This is a power and gas distribution company whose principal operations are in the UK and the US. It deals with the supply of energy, for which there is constant demand, resulting in relatively steady earnings and cash flow streams. A regulated business, National Grid signed an eight year agreement in 2013 with its regulator which was seen as important for the company’s future and improved confidence in the group. We have long been fans of the group, specifically for income seekers, and this is reaffirmed by a prospective 2019 yield of around 5.4%.

Growth stocks

Ashtead

Those looking for a growth company may have cherry picked a winner with Ashtead. The group rents a full range of construction and industrial equipment across a wide variety of applications to a diverse and global customer base. They should appreciate that it has an impressive track record of growth over the last four years and trading is forecast to continue, courtesy of better infrastructure spending and good underlying economic growth in its two main markets, the US and UK.

Across the pond, Ashtead has only a 7% share of the market and is looking to double that, targeting 15% through both organic growth and acquisitions. All of this combined with the strong earnings momentum it has developed, and the potential for further improvement in cash flow, makes this an attractive stock for medium risk investors.

Randgold Resources

Over the years, Randgold has proved to be one of the best performing gold miners around the world and over the medium to longer term we believe this will continue. Why so? Well, in an uncertain macro-economic and geopolitical environment, investors are keen on exposure to the precious metal. The price of gold is gaining momentum and the main drivers for this continuing in the near term could come from the renewed stress in the financial system, along with tensions in the Middle East, emerging market central banks as they attempt to diversify their foreign exchange exposure, and increasing demand for gold jewellery, particularly in Asia.

Brexit, the unconventional US president and upcoming elections in Europe will add to the geopolitical uncertainties and therefore to the attractiveness of gold, which is why we would suggest this stock could be a golden growth opportunity.

Value stocks

Lookers

Lookers started life as a bicycle shop opened by the eponymous John Looker in 1908. Since then, it has grown into a company which operates a number of car-related businesses, principally new and used car dealerships and aftersales. It also engages in a number of other areas such as leasing, vehicle rental and agricultural parts sales.

The shares underperformed the market in 2017 and now trade on a 2018 price/earnings ratio of 6.5 which is lower than its peers, while the prospective dividend yield of 4.0% is about average for the sector. We’d steer investors towards the group primarily due to the relative value of its shares at current levels, the diverse income streams and the potential for further progress.

Findel

This multi-channel retailer sells products such as textiles and bedding, electrical, furniture, nursery products, gifts, and greeting cards through its Express Gifts business to musical equipment and science-related items under its Education business.

The company recently highlighted a ‘record Christmas’ as a result of an 11% rise in product sales. The shares have made a good start to 2018 but still trade on a 2019 PE of just 8.4, which is attractively low relative to other retailers with mostly online sales. Findel is expected to see earnings growth over the next two years at least. The price-to-book value of 1.5 times is about average, relative to peers.

All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.

Ian Forrest portrait photo
Ian Forrest

Investment Research Analyst

Ian’s background in investments, financial journalism and research has seen him advising private investors on equities and helping to manage portfolios. His qualifications include the Certificate in Financial Planning and the Chartered Institute for Securities & Investment’s Investment Advice Diploma.