Sunday newspaper share tips
Each week we round up share tips from the Sunday newspapers.
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• Financial Mail's Midas column
Financial Times
James Gautrey, a technology and telecoms specialist with Schroders says many technology stocks trade on price-to-earnings ratios as low as 10-13 times next year's earnings.
With $30bn in net cash, Microsoft is the sector's titan. It trades at 16 times forward earnings and yesterday its shares still hovered at less than $30. Schroders' Gautrey says the company could yet generate a further $18bn to $20bn in yearly net cash, thanks partly to the launch of Windows 7.
Tyco Electronics, which trades at about $24 per share, is another favourite of Gautrey who believes its efforts to cut costs and restructure will improve its margins. He also favours Baidu, dubbed China's Google, and Applied Materials, the US semiconductor group. Now trading at $12.82, Applied Material's shares have risen about 25% in the last year.
Andrew Williamson Jones, manager of BlackRock's Global Equity fund, is bullish on telecoms as many stocks offer free cash flow yield of 10% or more and have pared back costs. The chance to earn dividends is another incentive to buy into the sector as yields on telecom stocks are outpacing those of 10-year gilts and US Treasuries.
Vodafone, Verizon and AT&T all offer yields of 6% or more while France Telecom and Deutsche Telekom's yearly payouts are in the 8 to 9 per cent range. 'In the rally of the last six months, telecom stocks have been left behind and now trade at a significant discount to the market,' says Williamson Jones.
Sunday Telegraph
The threat of a dividend cut and delayed economic recovery means that a number of City analysts have sell ratings on Electrocomponents. Sales are still falling but the supplier of 450,000 electrical components looks well positioned for the upturn when it comes, which means now could be a good time to buy shares.
The rate of slowdown in sales is also easing, with revenues down 17% in the first quarter, 13% in the second quarter and about 8% in October. In the six-month period to September 30, pre-tax profits slipped 58.1% to £24.8m on revenues that were 15.3% lower at £447.2m. The shares were at 140p in mid-July and have moved 19% ahead of that level since then to 167.7p.
Financial Mail on Sunday
TT Electronics delivered profits of £33.3m in 2007 but this year the company is expected to make just a few hundred thousand pounds. It has been a rough recession for the global electronics business, which makes products for customers including the NHS, the Ministry of Defence and BMW.
Until recently half its customers were car makers and as demand for new vehicles slumped, so did TT's orders. But even though this year's figures are likely to be poor, the company is well worth a closer look. Under new chief executive Geraint Anderson, the Surrey-based company has embarked on a three-to-five-year plan to take the company from an over-reliance on car makers and low-margin work to a focus on more stable industries, such as defence and healthcare. It will also expand into more profitable business areas such as secure power - uninterruptible power supplies for organisations that cannot afford to have the lights go out.
Mr Anderson is also streamlining the company so there is no duplication of effort or cost. TT shares were more than 240p in January 2007. Today they are 81p. At this level they offer a real opportunity. The company will benefit, like many others, as economic conditions recover, but its own internal improvement programme should deliver additional gains.
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