Checking up on our sizzling summer stock tips for 2018
With those long warm days drawing to a close, we see how our hot picks did over the summer months.
Ian Forrest, one of our Investment Research Analysts, outlined four companies that he thought could benefit if the sun continued to shine. Today he revisits the shares, providing some updates as Summer draws to a close.
We recommended Carnival in July because we all know how much Brits love a holiday. Since then, the shares have risen 10%, much of which is simply the price recovering from a sharp drop in June. Many saw this dip as an overreaction to the lower than expected forward guidance in the interim results, but with third quarter figures due shortly, the market will be watching for any signs of rising costs. Nonetheless, with cruises being one of the fastest growing parts of the leisure sector, we still recommend the stock as a ‘buy’ for medium-risk investors.
With a consistently great dividend yield, currently at 7.9%, we tipped Vodafone over the summer thanks to a rise in profits and their 4G offering in some overseas holiday locations. Since then, the shares have fallen 12%, with much of that due to increased competition slowing down the company’s European operations. The Q1 update in late July was in-line with expectations and showed that emerging markets service revenues and mobile data growth rates remained good. The announcement of a merger between Vodafone’s Australian business and a local fixed line telecoms operator caused the shares to weaken in late August but we view that as an opportunity for income-seekers.
Smith & Nephew
Football frenzy took the nation by storm over the summer, and global orthopaedics company Smith & Nephew were our pick to benefit. It looks like the company scored with the shares being up 6% since July with the market reassured by the company’s outlook as part of their interim results towards the end of last month. Some of the key established markets returned to growth in the first half, including hip and knee implants, most likely benefitting from the ageing society in the West. Sports medicine and advanced wound devices also saw a return to growth. Another positive for investors was that the forecast for full year sales growth of 2-3% was restated.
A long hot summer should increase demand for many of its brands, which was part of the reason that we tipped Diageo to be a winner of the summer. Good news for investors is that there was a 5% increase in the final dividend and a £2bn share buyback scheme is due to be completed over the next year. The shares rose initially in July to a record high but have since eased back to around 4% below where we tipped them, similar to the performance of the wider market. The main causes, much like elsewhere in the market, have been the concern about the US-China trade dispute as well as profit-taking. Full year results in July showed a 5% rise in organic net sales with growth said to be broad based across regions and categories and Diageo also said that it continues to target mid-single digit organic net sales growth and an improvement in its profit margin.
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