Six share tips for 2017
23rd December 2016 09:00
by Lee Wild from interactive investor
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Despite three crashes, the worst start to a year on record, a Brexit vote and a Donald Trump election win, stocks did brilliantly in 2016. A slump in bond yields and collapse in sterling meant equities were the only show in town, sending stockmarkets to record highs.
Among the 2016 growth tips, online casino operator jumped by 21%, following record profits and contract renewals.
generated double-digit returns, even before founder and chief executive Paul Parmar and US firm CC Capital launched a buyout in November. If it completes, the 270p in cash and shares will give us a 50% profit.
Unfortunately, IT company blotted the copybook when an accounting cock-up wiped out two-thirds of its value. The three income stocks delivered.
We never believed star performer would cut its dividend. It didn't. A 6.5% yield and a bounce in the oil price drove the share price up by 40%.
Special payouts generated a yield of more than 8% at insurer . But contract losses and a difficult home insurance market dented the share price.
June's shock Brexit vote smashed the housebuilders, including . Its share is down 22%, but it has bounced a bit and yielded 5.5%.
Speculative growth
SQS - Software Quality Systems
Share price: 608p | Price/earnings (PE) ratio: 12.2 | Dividend yield: 2.6%
is already the largest specialist software quality assurance service provider in the world, but demand is growing fast.
Trends such as digitalisation - think autonomous driving, mobile payments and smart cities - mean businesses need companies such as SQS to make sure their systems do not fail.
New regulations are money-spinners for SQS, so a Brexit should provide plenty of opportunity.
There's lots of potential in the US too, where SQS could gain market share from Indian testing firms. Despite all this, the shares trade at a big discount to their peers.
Mysale
Share price: 98p | PE ratio: 239* | Dividend yield: n/a
Members-only internet retailer specialises in "flash sales" - sales of designer goods for short periods at knockdown prices. It started life in Australia and New Zealand, which remain its core markets, but it now trades globally.
A profits warning in 2014, six months after the firm floated, wiped out four-fifths of its value. But problems were isolated, and sensible investment is paying off. It's tipped to make a profit this year and more than double earnings after that.
And it trades at a discount to big rivals. *A PE of 97 is forecast for the year ending June 2018.
Scisys
Share price: 104p | PE ratio: 10.5 | Dividend yield: 1.9%
Mispricing a contract 18 months ago cost dear, but a top-notch management team learned its lesson.
Now the software systems firm, which works for governments, space agencies and large commercial clients, has made a potentially transformational acquisition.
Previously too project-based and public sector-focused, Scisys is now buying high-margin German newsroom software supplier Annova for up to €28 million (£23.5 million).
Already in the midst of a profits upgrade cycle, Scisys is now expected to make seven times more in 2017 than it did in 2016.
Speculative income
Legal & General
Share price: 240p | PE ratio: 10.2 | Dividend yield: 6.2%
Wiped out after the Brexit vote in June, insurer recouped losses but underperformed in 2016.
However, a recession in 2017 now seems less likely than it did, and concerns that EU regulation will hurt the bulk annuities market look overdone.
A surge in the popularity of passive and exchange traded funds plays to L&G's strengths. A generous dividend is tipped to grow annually at 5%.
Galliford Try
Share price: 1,288p | PE ratio: 8.4 | Dividend yield: 7.4%
Housebuilders have struggled since the Brexit vote, but a plunge in demand for housing has not materialised. House price growth is slowing, but the fundamentals, chiefly a shortage of supply, remain supportive.
full-year results in September beat expectations, and the annual dividend jumped by 21%, covered 1.6 times by earnings. Expect double-digit growth in profits and dividend in 2017.
Greene King
Share price: 663p | PE ratio: 9.3 | Dividend yield: 5.1%
Buying yield is expensive, so it's refreshing to find quality income stocks trading on single-digit valuation multiples. shares have fallen by a third since late 2015, but concerns about Brexit, inflation and consumer demand are priced in.
Half-year revenue was record-breaking and profits grew. Trading has improved, and an annual cost-savings target of £30 million was hit. That should help offset inflationary pressure ahead.
This article was originally published in our sister magazine Money Observer. Click here to subscribe.
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.