IMI, Endeavour Mining, Harbour Energy and Jet2 are among the top 10 share picks for 2024 from analysts at Stifel, who were asked for the best investment ideas from their sectors.
Analysts at the investment bank each choose their top stock from their coverage, led by head of research and industrials analyst Mark Davies Jones, who chose IMI PLC (LSE:IMI) for its premium profit margins at a discount valuation – “a rare combination in this sector”.
Since the launch of its new strategy in 2019, the FTSE 100-listed fluid engineer has returned to organic growth and grown margins from 14% to 19%, with 20% now in sight.
A valuation where the shares trade for 12.5 times 2024 earnings (compared to Rotork at 20 times and Spirax at 29 elsewhere in the sector) is "yet to reflect IMI's strengths", he said, with end markets now becoming more positive.
Other top picks for Davies Jones in the sector are discoverIE Group PLC (LSE:DSCV) ("very significant M&A potential") and Vesuvius Plc (LSE:VSVS) ("value and income").
Mining and energy
Endeavour Mining PLC (LSE:EDV, TSX:EDV, OTCQX:EDVMF) was the top pick for metals & mining analyst Andrew Breichmanas as he sees investment demand for gold remaining through the year due to continued high geopolitical risk, coupled with the completion of two significant projects that are expected to see the company “return to generating meaningful cash flow before year-end and support future shareholder returns”.
Meaningful catalysts for Endeavour are expected throughout the year, including final results and first production from the Sabodala-Massawa expansion project in the first quarter, first production from the Lafigué development project in the third quarter, and completion of the Tanda-Iguela project preliminary feasibility study in the fourth.
Other top picks in mining include Capital Limited (LSE:CAPD), Trident Royalties PLC (AIM:TRR, OTCQX:TDTRF), Atalaya Mining (AIM:ATYM, TSX:AYM) and Adriatic Metals PLC (LSE:ADT1, ASX:ADT, OTCQX:ADMLF).
Harbour Energy PLC (LSE:HBR) was picked by analyst Chris Wheaton for its “great” free cash flow (FCF), with the current valuation pricing in UK political risks.
He estimates the market is discounting at a 20% rate on the UK assets but Harbour’s Wintershall deal reduces UK to circa 35% of production and less than 25% of FCF, “so should drive rerating”.
Leisure and retail
Leisure analyst Mark Irvine-Fortescue picked Jet2 PLC (AIM:JET2) as the 7.0 times earnings valuation suggests “the market is wrongly discounting material estimate cuts”.
In his view, this “overstates the cyclicality of holiday demand and underestimates Jet2’s position as a structural winner”, with its market share having risen from 13% in 2019 to 21% now.
After material profit upgrades, the next leg of share price outperformance is expected to come from a re-rating “as summer 24 booking fears are assuaged”.
DFS Furniture PLC (LSE:DFS) is the choice for retail analyst David Hughes, who noted that the shares are close to an all-time low but the company has a proven record of growing market share – particularly during downturns – and is “well positioned to capitalise as and when the market recovers”.
Property and healthcare
Top picks in property included Picton Property Income Limited, for its low gearing and the shares offering value and superior earnings growth compared to peers, said analyst John Cahill.
Last year a mooted merger between Picton and UK Commercial Property REIT (LSE:UKCM) was called off after pressure from the latter's largest shareholder.
Supermarket Income REIT PLC (LSE:SUPR, OTC:SUPIF) was also touted by Cahill, who noted that while the shares underperformed during the rising interest rate period, with fixed income markets now pricing in a Bank of England base rate of 3.75% by November this year, “we think the shares will return to favour with investors as the conditions for interest rate cuts become self-evident”.
In healthcare, Ireland’s Uniphar PLC (AIM:UPR) was the selection for analyst Christian Glennie, who feels the stock was oversold in 2023 on gearing levels and interest charge driven EPS downgrades – but as there are “no issues with underlying business growth prospects and interest rate environment more favourable, expect shares to rerate during 2024” from current three-year low multiples.
Other picks for Glennie include Indivior PLC (LSE:INDV) and NIOX Group PLC, but he expressed caution on Oxford Nanopore PLC as while it is “potentially disruptive technology given its innovate long read capabilities, we feel patience will be required”.
Support services, tech and internet
Mitie Group PLC (LSE:MTO) was top pick in support services, where analysts Samuel Dindol and Jacob Armstrong see short-term upside given the strong momentum in recent months.
And if M&A and other objectives are achieved "we see scope for investors to potentially double their investment through to FY27" through share price gains and cash returns.
Two other stocks to own are Franchise Brands PLC ("valuation undemanding" and "we expect 2024 to be a key year of operational delivery") and JTC PLC (LSE:JTC) ("well-positioned to continue driving growth through 2024 in an attractive end-market", with significant private equity consolidation in the industry at higher multiples than the shares currently trade).
Stifel's top picks in the tech sector, published in a separate note, include Kainos, Future, Seeing Machines, Bango and Next 15.