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Equity markets have moved sideways recently and in a narrower range than we've been used to this year. It's certainly true of the FTSE 100 (UKX) and FTSE 250 (MCX), as stocks take another pause for breath following their spectacular surge over the past 18 months. Now, some believe investors must widen the net to catch bargains.
That the blue-chip index is still up 3.5% in 2017 and the mid-caps up almost 10% is impressive, given uncertainty caused by both the general election and early stage Brexit negotiations. The top 100 is still only 190 points from a new record high, and any dips have been treated as a buying opportunity. Concerns remain however.
"With fears mounting that valuations now look stretched for many of the most well-known stocks, attractive opportunities may lie elsewhere," broker Cantor Fitzgerald tells us.
That's why Cantor's analysts have identified their highest conviction stock ideas for investors seeking alternatives to UK-listed mid and large cap companies.
Financial services expert Keith Baird picks Gateley (GTLY), the commercial law firm and independent pension scheme trustee.
"Trading in the second half of its financial year has exceeded management expectations, and apart from continued organic growth across all the business segments, the acquisitions of Gateley Capitus and Gateley Hamer have broadened the group's capabilities and contributed positively following successful integration," he says.
"Our longer-term forecasts assume circa 8% organic growth given that Gateley has only a very small share of the overall legal services market. In addition, we expect further accretive acquisitions."
Robin Byde at Cantor's transport team likes Air Partner (AIR), which is transforming into a diversified global aviation services provider.
"All in all, Air Partner's fundamentals and market positions are strong," writes Byde. "Broking is a cyclical sector but the group's activities are broad-based, and consulting & training will form a larger component of future profits.
"We believe that the group can deliver double digit earnings growth and strong free cash this year, with potentially more upside from acquisitions. Its valuation is attractive versus the FTSE Support Services sector and the FTSE All-Share (ASX)."
SDX Energy (SDX) is oil analyst Sam Wahab's favourite."Investors can look forward to a period of significant drilling activity providing share price catalysts that set the company apart from its AIM listed constituents in our view," he says.
"In the current climate, we continue to advocate companies that pursue low cost development/production strategies and SDX has certainly delivered on this criterion, with further running room in the share price to come."
Moss Bros (MOSB) shares had a great May, but have drifted back since. However, Cantor's general retail expert names the suit hire firm to bounce back.
"Whilst external macro headwinds will pose challenges in the year ahead, the senior management team has been significantly strengthened over the past 12 months and has a number of initiatives which will drive further growth," explains Mark Photiades.
"There are risks, including the impact of rising clothing costs as a result of a weakening in sterling against the US dollar and increases in minimum wage rates, but we recently increased our target price and maintain our 'buy' rating, given the business' current trajectory."
In healthcare, the broker's Brian White backs Mereo Biopharma (MPH), a late stage drug development company with a focus on rare diseases.
"It has a highly attractive model that involves identifying and securing drug candidates from large pharma companies which come with substantial and positive human clinical efficacy data," says White.
Key data from research in to inherited disorders is due early in 2018, but important news on two remaining programmes is due before then.
"The first, and arguably highest risk, is looking at improving lung function in patients suffering from chronic bronchitis," explains White. "Positive data could see us include sales for the first time in our financial model, having a positive impact on valuation and share price progression.
"The remaining programme is targeting obese men with low testosterone levels and looks to be the lowest risk, with Mereo ensuring that the clinical design meets with current regulatory requirements."
Orosur Mining (OMI), digging for gold in Uruguay, Colombia and Chile, is metals and mining expert Asa Bridle's top pick.
"With practically no debt, and production expected to be stable at the San Gregorio operations in Uruguay over the medium term, Orosur can use the future cash generated from its mines to fund both further production development in Uruguay and a significant exploration drilling programme on the exciting Anzá gold project in Colombia," writes Bridle.
"Positive outcomes from either or both of these campaigns would represent notable, value driving, progress for the company as it looks to become a more significant gold producer based on multiple, long life, operations."
After a "torrid year" for Blancco Technology (BLTG), analyst Kevin Ashton thinks the mobile device diagnostic provider and data removal specialist's luck will change in the months ahead.
"The premise for sticking with Blancco and picking it for H2 recovery is that there is clearly growth in the end market (historic growth is some evidence of this), and there is considerable pressure on management to up its execution game to exploit this opportunity," believes Ashton.
"From speaking to shareholders, I would say the latter is non-negotiable."
Finally, William Game, who covers industrials, goes for chains expert Renold (RNO).
"We continue to see good value in Renold, the high precision transmission engineer that has recently delivered a positive AGM update.
"The shares trade very modestly on a prospective PE ratio of 9x versus other growing small-cap engineers on c.15.5x. This should offer good share price upside as Renold benefits from high operational gearing as incremental sales are captured."
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.
|OROSUR MINING INC||15.50p||1.64%|
|FTSE MID 250||£20,131.57||-0.08%|
|FTSE ALL SHARE||£4,127.45||-0.01%|
|BLANCCO TECHNOLOGY GROUP||53.00p||2.91%|
|SDX ENERGY INC||49.88p||-1.72%|
|MOSS BROS GROUP||95.50p||-0.26%|
|MEREO BIOPHARMA GROUP||312.50p||0.00%|
|All data 15min delayed as of: 06:46:23 24/10/17|
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