While often, not always completely unfairly, canned for their lack of consistently in beating the market, fund managers have risen to the top of their profession. While there should of course be accountability and room for healthy criticism, some of the stock pick forum rubbishing of fund managers can be considered akin to a bunch of blokes sitting having a beer after their weekly 6-a-side game and rubbishing Premiership footballers.
They might be having a sticky patch of form at the highest level in the world, but you certainly wouldn’t refuse them a cameo appearance in your amateur league if circumstances conspired for it to be offered!
Fund managers are the equivalent in the stock picking world. With the skill, experience and resources they are able to tap into, it of course makes sense to at least listen to, and then further research, any stock tips they might throw out there! The Telegraph has today published four top stock tips from four different fund managers that anyone investing online in their ISA or SIPP will find of interest. So which companies are they and why do they think they are a good shout for 2018?
Alex Wright, Fidelity Special Situations – RBS
Royal Bank of Scotland reported a loss into the billions for 2017 – and still saw its share price gain 23% over the course of the year. And Mr Wright, whose Special Situations fund bought RBS last year having previously favoured other banking stocks, is tipping it for another good run this year.
He sees an opportunity in the fact that many potential RBS investors are waiting in the wings until the US Department of Justice decides the size of the fine it will meet out for the bank’s role in the subprime mortgages scandal that triggered the financial crisis. While that does add an element of risk into RBS’s share price prospects, Wright believes the potential upside if the fine comes in towards the lower end of the expected range makes the ratio a good one.
In the worst case scenario and the fine is towards the high end, RBS will still be able to absorb it and equity in the bank should still come good, albeit with some delay. However, if it is towards the lower end, RBS would be expected to resume dividend payments and share buybacks, which would send the stock soaring.
A root and branch restructuring and downsizing of the bank, still two thirds owned by the UK government, means that it should again be in a healthy financial position in coming years.
Simon Moon and Fraser Mackersie, Unicorn UK Income – Somero Enterprises
With a market cap of just £160 million, Somero Enterprises, which designs and manufactures lazer-guided concrete laying machines, Somero is certainly a small small-cap. However, it’s a stock that the Unicorn UK Income managers are excited about. The company is the established international market leader in their niche and have good market share in both the USA and developing markets as well as in the UK and Europe.
Given Somero Enterprise’s strong market position, the pair believe that a share price currently trading at a multiple of 15 on 2017 earnings offers considerable value, especially considering the company’s 3% dividend yield and cash reserves. Growth is also expected to be organic rather than acquisitions based so much of that cash is potentially available to be distributed to shareholders in coming years. U.S. tax reform is also set to boost Somero’s bottom line with 30% paid on its considerable U.S. earnings in 2016.
James Thomson, Rathbones Global Opportunities – Align Technology
Align Technology is the company behind invisible dental braces product Invisalign. Those are the ones almost everyone had a family member or friend wearing and raving about in 2017. Despite the fact the company’s share price has already risen by over 300% in two years, Thompson believes there is plenty of potential for further strong growth.
While acknowledging the stellar returns over the past two years add an element of risk to Align Technology shares, he believes recent design developments in the company’s products mean there is also very good potential upside.
Until recently the Invisalign technology wasn’t suited to use be teenagers, as they are still growing. Crucially, teenagers account for 75% of the market for braces and dental realignment technology. The new design means Invisalign can now target this market. Key to this will be convincing traditional orthodontists around the world to start selling Align Technology Invisalign braces to teen patients. However, even limited success in this new market would be expected to reflect very favourably in the company’s share price.
Because Align is a Nasdaq-listed company, their shares can only be traded through online stockbrokers that offer US equities. However, most of the major UK-based online stockbrokers now do.
Rosanna Burcher, Artemis Global Select – Mitsubishi Electric
If the last two picks were for up-and-coming companies, Rosanna Burcher of the Artemis Global Select fund firmly brings us back to the world of large-caps. Her choice is Mitsubishi Electric, one of Japan’s most established companies and the world’s largest manufacturer of electric motors. The company’s products have a wide range of applications across lifts, escalators and increasingly automated factory production lines.
It is the increasing role of automation, and thus market, that Burcher believes holds the greatest potential for Mitsubishi Electric. The Asian market for automated manufacturing is growing particularly strongly and other divisions within the group, such as those producing air conditioning units, are also doing well. Against what she sees as a modest valuation based on the company’s healthy cashflow, Burcher thinks the strong growth in the automation division, already contributing 40% of operating profits, means the stock has strong potential.
UK-based investors can gain exposure to Mitsubishi Electric shares through US-listed American Depository Receipts, which act as a proxy for the stock’s Tokyo Listing.