The sharp stock market sell-off in the fourth quarter has thrown up some bargains for sharp-eyed investors.
From Pacman to Indian cars and energy consultants, Citywire-rated managers have identified a wide range of opportunities across the globe.
We asked them which stocks they expect to shine in 2019.
Ken Wotton - AAA
LF Gresham House UK Multi-Cap Income fund
‘We expect to see continued uncertainty and volatility going into 2019, not least due to Brexit. Typically, where there is volatility, there is also opportunity. While large cap businesses are generally impacted by macro factors, the agility and niche positioning of smaller companies may allow them to react positively to broader economic headwinds. One such company, Inspired Energy, is poised for strong performance in 2019.
‘The company is one of the UK’s leading independent energy consultants, advising mid-sized corporates and higher-end SMEs on how best to optimise their utility expenditure. The appeal of Inspired Energy is its revenue largely comes from energy providers. While it advises mid-sized corporations, Inspired Energy is paid in commission from contracts with large energy suppliers, with payments based on the energy usage companies incur. This guarantees multi-year revenue and high earnings visibility for the business.
‘We believe Inspired Energy understands its customers. We bought the stock when we launched the LF Gresham House UK Multi-Cap Income fund as one of our initial holdings on 2011. We are continuing to top it up, particularly considering recent news Inspired Energy is fundraising to acquire a competing business.’
Peter Rutter - A
Royal London Global Equity Select fund
‘Bandai Namco is a Japanese gaming and toy manufacturer and the creator of the likes of Pacman, Tamagotchi and Power Rangers. The company has a medium term intellectual property strategy aimed at increasing sales and profits by harnessing its portfolio of content.
‘It is aiming to do this by using a wider range of media, such as film, music, mobile gaming, toys, cards, console gaming, TV, appealing to a wider range of age cohorts and looking beyond its traditional core market, Japan. The company is enjoying some success with this – expansion into the domestic Chinese market has been going well. This is driving high single-digit organic growth and as an asset-light business, this drives significant operational leverage and cash flow growth.
‘The company has been effective in implementing the plan, but there is still a lot of potential, and importantly, we believe that the valuation is attractive relative to that progress and opportunity. It may not be a household name, but the strong stock-specific shareholder wealth creation and attractive valuation is the kind of stock we like as stock pickers in the RLAM global equity team.’
Anthony Cross - AAA
Liontrust UK Micro Cap fund
‘IMImobile is a cloud software company whose products enable companies to communicate more effectively with their customers via mobile and digital channels. Increased automation of such communications via the IMImobile platform, through which over 42 billion messages are sent and 44 billion commerce transactions are performed every year, helps companies to improve end-customer engagement and experience and drive business efficiencies.
‘The company counts household names such as O2, BT, Centrica, Foxtons and Pizza Hut as customers, as well as many of the large retail banks. Despite its relatively small size (around £200 million market cap), IMImobile is a truly global business, active across the world from the Americas to Europe, Middle East and Africa, India and South East Asia.
‘As well as delivering robust organic growth, the company is also growing by acquisition and while it already has a dominant market position in the UK, with impressive reference customers, internationally the US is the big prize for it to go after in building market share.
‘We hold IMIMobile on the grounds of all three of these key strengths: IP within its software, an embedded distribution network within its very sticky customer base, and also 90% recurring revenue thanks to the company’s software-as-a-service (SaaS) charging model.’
Alan Custis - A
Lazard Multicap UK Income fund
‘Prudential had a difficult 2018, with the shares down 26% year-to-date. However, we believe this presents an attractive buying opportunity.
'The business continues to see strong profit and earnings growth driven by its dominant Asian franchise, where the structural shift towards insurance products from a wealthier Chinese population should provide a tailwind for the foreseeable future. Combined with a significant undervaluation versus its closest peer (AIA), this makes for a very attractive proposition.
‘Furthermore, the recently announced de-merger of M&G could well signal a shift towards further rationalisation of the business. We think its US insurance business is well placed to attract suitors, as variable annuities become more compelling as an investment product as market volatility picks up.
‘The capital position of the business is the strongest of any of the UK’s major insurers, with a Solvency II ratio of 205%. This allows the business to grow earnings and profits at low double-digit levels, while also committing to a progressive dividend yield, which will be 4% in 2019.
‘Lastly, the valuation is lower now than during the 2016 sell-off, and represents a 31% discount to its five-year average when measured by forward P/E ratio.’
Caroline Maes - AA
Comgest Growth Asia ex-Japan fund
‘Suzuki Motors, listed in Japan and whose main profit contributor is Maruti, looks particularly attractive from a valuation perspective.
‘Maruti Suzuki is India’s largest passenger car company with a market share of 50% and is set to benefit from a sharp drop in inflation, lower oil prices and likely pre-election government stimulus.’