Broadcaster ITV (ITV) and kitchens seller Howden Joinery (HWDN) lead Liberum’s ‘Conviction List’ of the top large cap stocks to buy. On its sell list is financial services group Hargreaves Lansdown (HL.) and miner Rio Tinto (RIO).
Liberum, an investment bank, says its list has been constructed by analysts based on bottom-up conviction rather than thematic calls.
The ‘buy’ list does have a value bias with ITV and Howden both deemed to have been sold down too far amid market concerns about cyclical headwinds in the UK.
We share Liberum’s enthusiasm about both stocks. ITV is among one of our tips of the year and Howden is in our ‘Great Ideas’ portfolio.
The ‘sell’ list has a bias towards companies operating in structurally challenged end-markets, including education publisher Pearson (PSON) and retailer Marks & Spencer (MKS).
Liberum is also cautious on ‘bond proxies’. These are stocks considered to have fairly reliable income streams and higher yields than bonds, but which may fall out of favour if interest rates start to rise.
Safety products group Halma (HLMA) fits the bill, according to Liberum which has that stock on its ‘sell’ list. We disagree, having explained in February the reasons why we like the stock.
It doesn’t like Hargreaves Lansdown for several reasons. It is worried about growing competition and regulatory pressures. It also flags structural issues in the investment market where a price war trend between online brokers in the US could be repeated in the UK, in its view.
Moving back to the ‘buy’ list, Liberum likes GlaxoSmithKline (GSK) for its potential to earn higher margins and having new products to offset declining income from its Advair blockbuster drug because rival generic versions bring down the price.
Inter-dealer broker TP ICAP (TCAP) is tipped by Liberum as a stock to own. ‘It is our conviction “buy”, based on the sheer scope for revenue and cost synergies over the next three years,’ says analyst Justin Bates.
‘In addition, the cyclical headwinds have reversed post Trump’s election victory and we believe the structural challenges have been overblown.
‘Finally, we see scope for a positive re-rating due to the rapidly growing and higher value Information Sales business,’ adds Bates.
The final London-listed stock on Liberum’s ‘buy’ list is construction firm Balfour Beatty (BBY) based on recovery potential, operational improvement and good management, among other factors.
