Investment Column: Mouchel is a haven from the spending cuts

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Our view: Buy

Share price: 125p (+8.5p)

While the looming public spending cuts are striking fear into hearts across industries reliant on government business – not to mention raising the spectre of a double-dip recession – the engineering consulting and services group Mouchel sees the late October Spending Review as an opportunity rather than a curse.

The group's local government consulting arm focuses on just that kind of cost-cutting and improving service skills that will be much in need. And the highways business specialises in maintenance, rather than building, which is likely to see a boom as large-scale infrastructure investment plans are scaled back.

"The medium and longer-term outlook is becoming increasingly positive as the new government's policies are implemented by organisations across central and local government," Mouchel said in a trading update yesterday, sending the shares shooting up by more than 6 per cent in early trading, before closing the day up 7.3 per cent.

Mouchel has not escaped unscathed from the recession. It was badly burned by the collapse of the Dubai property market, and is now exiting the Emirate in favour of cash-rich neighbour Abu Dhabi. It is also still in the process of slashing £25m of costs out of its UK business, which includes office closures and headcount reductions.

But the outlook is positive. As well as the potential austerity-induced surge in orders, it has an order book and pipeline in the region of £2bn. The Australian market is proving particularly fruitful. In a joint venture with Downer, Mouchel is preferred bidder for the Mid-West Gascoyne highway maintenance contract in Western Australia, the group said yesterday.

Notwithstanding the last year's patchy progress, Mouchel has much to recommend it from an investor's point of view. The case for optimism in the face of government spending cuts is a compelling one. And the shares have been dragged down – inappropriately, in our view – by recent read-across from troubled property group Connaught.

Taken together, Mouchel's stock has plenty of room for growth. Buy now.

Hargreaves Lansdown

Our view: Buy

Share price: 390p (+0.9p)

Peter Hargreaves and Stephen Landsdown are leaving the financial adviser and broker they founded 29 years ago in very rude health.

Yesterday Hargreaves Landsdown announced record pre-tax profits, fund inflows any money manager would kill for and a special dividend. The founders are going out on a high but there are good reasons to think there is further growth to come.

The search for yield amid record low savings rates that saw investors switch to funds and helped Hargreaves attract more than £5bn of new money last year is set to continue.

New chief executive Ian Gorman, a former Deloitte and Grant Thornton financial services chief, is a safe pair of hands and investors can draw strength from the knowledge that both founders will remain close to the business in which they retain a combined 50 per cent stake.

Mr Hargreaves should prove particularly useful. He is stepping down from management to concentrate on marketing and communications, and we reckon that could be a savvy move from an investor's point of view. Buy.

Vertu Motors

Our view: Buy

Share price: 27p (+1.25p)

With the "cash for bangers" scheme ending earlier this year and UK consumers tightening their belts, most car retailers are currently an unloved bunch.

This is partly why shares in Vertu Motors, the UK's eighth-largest motor retailer with 67 outlets, decelerated to a 12-month low of just under 26p on Tuesday. But investors put a turbo booster under its shares yesterday, following an update ahead of its half-year ending on 31 August that revealed underlying profits would be "materially ahead" of the same period last year.

Despite the ending of the scrappage scheme, Vertu revved up its like-for-like sales of used cars by 5.2 per cent in the five months to the end of July. Its private new car sales volumes also accelerated by 6.7 per cent. Vertu, which raised £30m in a share placing last year to boost it acquisition strategy, also said it had made "good progress" with the eight sales outlets it has acquired this financial year.

Shares in Vertu appear to be fairly valued on a 2011 price-earnings ratio of 11.1. But as it is considering reinstating its dividend, we think there is fuel left in Vertu's tank, despite the uncertain consumer environment. Buy.