It’s 2019 and already investing today feels very different than it did 12 months ago. This time last year the global equity markets were rising, investor confidence was high and in May 2018 we saw the FTSE 100 reaching all-time highs of 7,860. At the time of writing, the index is nearly 11% off those highs; uncertainty is elevated, markets are falling, volatility is high and investor confidence is fragile. Is this time for the valued investors to step in and pounce? As Warren Buffet says “Be fearful when others are greedy and greedy when others are fearful “. Time and time again this philosophy has worked for the value investor.
For long-term investors, I think current market conditions could be a great ‘buy the dip’ opportunity. Many stocks are trading lower than they were 12 months ago, and yet many dividend yields are higher. That’s positive for those with long term investment horizons.
Let’s look at my three top UK stock picks for 2019.
Given the uncertainty that investors are currently faced with; ranging from trade wars, Brexit and talks of a potential recession resulting from a slowdown in global growth, it’s understandable to understand why investors may be on edge. From my experience as a stock and FX trader, it’s a good idea to own several reliable defensive stocks within an investment portfolio. So first on my list is Unilever (LSE:ULVR), a FTSE100 company with an incredibly vast portfolio of drink and food, personal care and homecare brands such as Dove, PG Tips, Persil and TRESemmé. Due to the stock’s product demand and product range, its rather robust against what’s happening within the global economy and Brexit.
Additionally, Barclay’s capital has an overweight rating on the stock with a target price of 4,750.00p, furthermore, we have Berenberg rating the stock as a buy with a target price of 4,650.00p. With current price at 4,148.50p, arguably it looks like a nice discounted stock going into 2019. For the 2019 financial year, analysts are expecting Unilever to pay a dividend which equates to 3.02% at the current share price. It may not be the highest yield in the FTSE 100 I understand that, but the company does have a track record of increasing the dividend yield at a rate above inflation. Which is a big plus from a dividend-investing perspective.
Overall the stock is well diversified in its products, resilient against economic downturns, has a strong track record of reasonable paying dividends and currently has buy bias broker ratings. All things considered, in my opinion, this constitutes a strong buy opportunity.
The stock has grown considerably over the last five years by 163% producing an average annual return of 32.6% growth. Currently, we are presented with a great buy opportunity as the stock has come off its all-time highs back in September from 4,800.00p down to 3,900.00p. The stock is now sitting around 4,200.00p it could be a great opportunity to catch the move back to the highs or even further according to Credit Suisse moving their ratings to an outperform level, Commerzbank recently upgrading their rating to a hold and Barclay’s capital targeting 5,000.00p.
My third pick is Kier Group (LSE:KIE), which is a property, residential, construction and services company that recently took a massive share plunge of 55% through December 2018. The move was due to the company tapping shareholders for around £264mln to accelerate its net debt reduction plans and strengthen the infrastructure services balance sheet. With a plunge of over 55% you can expect an initial risk off sentiment from investors. Kier only received 37.66% acceptance for its rights issue, though as the fundraising was fully underwritten the construction group gain their cash proceeds. It was underwritten by Numis Securities, Peel Hunt, Citigroup Global Markets, HSBC and Banco Santander.
Kier Chief Executive Haydn Mursell said “following completion of the rights issue, the company “enters 2019 with a strong balance sheet which puts us in an excellent competitive position”.
Now that Kier is accelerating its net debt reduction and are focusing on using the capital to target year-end net cash position with an annualised average net debt below total EBITDA. It can be argued that the rights issue mitigates the risks that have been previously cited by Kier, but potentially accelerates the pace of work winning through competitive advantage as well as enhancing the terms and conditions with key supply chain partners. Is the risk off sentiment now over with the share price moving up over 7% on January 4th 2019, is the real question? We have Peel hunt still rating the stock as a buy with a market target of 900.00p, furthermore, we have Canaccord Genuity with a market target of 525.00p. With the current market price sat at 430.00p these two brokers are targeting between a 20-100% growth target on the stock and I think that cannot be ignored. To top it off the stock has a dividend yield at current market price of a staggering 16% that is not to be sniffed at, albeit risky it is for sure a potential opportunity in my opinion.
The bottom line? Investing in the UK stock market may have its uncertainty but overall these 3 stocks I am looking at, in my opinion at their current levels, are conservative buys to move to the upside even surrounding the overall Brexit news. I hope you have enjoyed my very first article, please do leave a comment below and I’ll be sure to post more!
