Nicholas Hyett 11 January 2019
Our five shares to watch in 2019 are companies we feel have unique advantages or opportunities this year.
But there are also economic trends affecting whole sectors. Here we take a look at three sectors that could be well-placed to benefit over the coming year.
Investments will fall as well as rise in value so you could get back less than you invest. If you’re not sure if an investment is right for your circumstances, please seek advice.
Video games now account over half of the UK’s entire entertainment market. With total spend reaching £3.86bn last year, it’s more valuable than video and music combined.
Unfortunately for the high street, sales of physical games and consoles have been in decline. Instead, gaming spend is being driven by digital sales, particularly in-game purchases. That’s great news for developers, who now have direct access to their customers.
Powerful brands like FIFA and Assassin’s Creed, published by Electronic Arts and Ubisoft respectively, continue to pull in the crowds on consoles. But gaming is now much more than a black box beneath the TV – mobile and free to play online games have grown spectacularly.
Activision Blizzard made it into our five shares to watch this year because it’s a leading mobile game publisher. It’s made early progress in developing an esports business as well, and continues to make the most of its Call of Duty franchise.
The big publically traded publishers may not be UK listed, but the London Stock Exchange is far from devoid of gaming talent.
Keywords Studios is a market leader in providing outsourced design, audio and translation services to game developers. It’s delivered very impressive profit growth in recent years.
The group’s not been immune to the disruption caused by Fortnite bursting onto the gaming scene though, and currency headwinds have caused some disruption as well.
But a wide range of services and a customer base that includes many of the world’s leading game developers should mean it’s well placed to benefit from the trend towards increased gaming spend.
Property could feel like an intimidating place to invest at the moment.
A struggling retail sector is holding back rental values in shopping centres and on the high street, while residential property prices are stagnating. But we think there are still areas of opportunity, particularly if you look at more niche parts of the market.
The checklist for investors should be high quality tenants, long lease agreements and ideally some kind of underlying growth trend. All being well, these should mean rental income is dependable through any downturn, and the value of the underlying properties remains stable.
We’ve been long term supporters of Tritax Big Box REIT as meeting all these criteria. The group buys, develops and rents out giant warehouses that are vital for e-commerce.
Uncertainty about the health of the UK economy means the shares are trading meaningfully below book value for the first time in three years, and offer a yield of 5.3%.
It might not be a surprise to hear that specialist REITS make an appearance in our five shares to watch as well. The company in question is Primary Health Properties, PHP for short.
PHP develops and rents out tailor-made community healthcare buildings in the UK and Ireland – think GP surgeries, with extra healthcare facilities bolted on.
Some might think specialist community health facilities provided in partnership with the private sector are a relatively recent innovation in the NHS. But PHP listed on the London Stock Exchange and has been doing its thing since 1998. Now in its 22nd successive year of dividend growth, it’s a partnership that seems to be working for patients and investors – although there’s no guarantee that track record will be maintained.
The first thing to say about the UK’s two oil majors is that exactly how the next year pans out depends on what happens with the oil price. And the oil price is anything but predictable.
After operating profits fell to just $2bn at BP in 2016 and $6bn at Shell, in 2018 they’re expected to deliver $22bn and $39bn respectively. That’s funding an increase in returns to shareholders – through dividends and share buybacks.
Big oil companies like BP and Shell have an advantage over smaller rivals because they have ‘downstream’ divisions. These businesses are involved in refining oil products and selling them on. They’ve tended to do better when oil prices are falling, and can provide a natural hedge when times are tough.
Although the differences in performance can be pretty marginal where oil majors are concerned, of the two we prefer BP at the moment.
The costs relating to the Gulf of Mexico oil spill are finally fading. Although they won’t completely disappear until the early 2020s. That frees up billions of dollars.
More importantly, the new oil fields BP has under development are low cost and high quality – securing the group’s future in a volatile oil price world.
Of course the sector is facing questions about the sustainability of oil demand, particularly given innovations like electric cars and efficient renewable energy generation.
However, we don’t think we’ve seen the end of hydrocarbon fuels yet. Large producers with high quality, low cost supplies should hopefully stay profitable for years to come.
Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.
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