Stocks to watch in August

Heading into August, America’s Magnificent Seven technology companies look set to remain the key focus, especially after significant volatility during the run-up to their quarterly results. There will be plenty more to focus on in August though, as businesses this side of the pond announce results or release statements updating investors about current trading conditions. With Labour’s infrastructure plans potentially moving centre stage, here are five stocks worth watching in August.

This is not a recommendation to buy or sell these investments and is purely insight into some of the companies that will be announcing results this month.

Travis Perkins

Interim results 06/08/24

For the UK’s largest builders merchant Travis Perkins, a lot may hang on the new Labour government’s plans to rejuvenate housebuilding. Depressed demand from the building and home improvements sectors caused earnings to sink last year. Annual pre-tax profits dropped to £70 million in 2023 compared with £245 million in 2022.

Conditions don’t appear to have improved significantly in the first three months of this year, as uncertainty reigned in the construction industry and timber deflation hit the general merchant business. Merchanting sales dipped by 4.4%, while revenues at Toolstation fell by 0.9%. No doubt investors will be hoping to see signs of a turnaround since then to help justify the recent buoyancy of the Travis share price and the company’s valuation of around 54 times historic earnings.

A shakeup in management now seems to be complete with a new CEO and chairman. CEO Pete Redfern says the focus is now on efficiency and cash generation as well as developing a strategy for the future, which seems to encapsulate a sensible approach in difficult markets. If the sector fires up as the government hopes it will, efficient suppliers with a strong focus on margins ought to have the most to gain.

The company reports having delivered £35 million in cost savings by reducing the company’s headcount. Now there are plans to simplify the operating model, reduce supply chain costs and harness the benefits of new technologies. Management expects to report progress in this regard in this month’s interims.

More on Travis Perkins

Bellway

Trading announcement 09/08/24

The Newcastle based FTSE 250 housebuilder Bellway will provide us with another snapshot of the state of the residential property sector in August when it issues a trading update covering its financial year to 31 July.

Bellway’s update in June looked positive enough. Trading was stronger through the spring owing to improved affordability arising from moderating mortgage rates and rising wages, and reservation rates increased compared to the second half of 2023. The forward order book of 5,346 homes was up from 4,411 homes at the start the current financial year.

Bellway’s shares have traded broadly sideways so far in 2024, right into its rejected bid for Crest Nicholson in June. Even so, Bellway’s all-share offer – revised £70 million higher to £720 million in early July – shows the company views the outlook for the sector positively and may see its own valuation (currently around 16 times earnings) as presenting an opportunity to gain a larger slice of it.

In June, Bellway said it was on track to have built 7,500 homes in the current financial year. This alongside the company’s operating margin – which is forecast to be 6% lower than the previous year’s 16% – will be among the data to look out for this time round. The company anticipates an average selling price of £305,000 for the year as a whole.

More on Bellway

Aviva

Interim results 14/08/24

Despite its positioning in a sector that has been out of favour for several years, Aviva shares have performed well since last autumn. The company appears to be in a good place at the moment, enjoying the fruits of a substantial re-pricing of motor insurance in the UK, rising home insurance premiums and years of jettisoning underperforming business units.

General insurance premiums, which account for around half of Aviva’s earnings, increased by 16% in the first quarter of this year. Other positive developments over the same period included £2.7 billion of net inflows to Aviva’s wealth business. The bulk of this was down to an inflow of £2 billion in workplace pensions as it won 136 new schemes. A £300 million share buyback programme, which was completed last month, will also have helped the shares.

Aviva now trades on a P/E of around 13 times, which doesn’t appear especially demanding in view of the buoyancy of its markets and the prospect of interest cuts on the horizon. A yield approaching 7% and a progressive dividend policy is what makes this stock attractive to many income seeking investors. That feeling may have intensified since rival Legal & General confounded investors in June by announcing share buybacks at the cost of a reduction in forecast dividend growth to 2%.

More on Aviva

Balfour Beatty

Interim results 14/08/24

The FTSE 250 engineering and construction group Balfour Beatty is another company to have seen its stock rise since the general election. That’s unsurprising given that the vast bulk of Balfour’s order book is with the public sector. Hopes of an increase in orders stemming from Labour plans to upgrade infrastructure and the company’s relative immunity from economic ups and downs in the private sector make this stock interesting.

Balfour Beatty’s current projects include the UK’s first nuclear power station in a generation at Hinkley Point and an automated people mover superstructure at Los Angeles International Airport. The company has also been selected as a construction partner to develop infrastructure for Rolls Royce’s nuclear submarine reactor components business at Derby over the next eight years.

Construction companies tend to operate on thin margins meaning that setbacks can easily make a significant dent at the bottom line. This highlights the importance of operational and geographic diversity which, the company believes is one of its strengths. Even so, underlying profits before tax dipped 10% last year, owing to lower gains on investment disposals.

Despite the recent rise in the company’s share price, a modest valuation of around 12 times earnings may reflect the risk the government’s infrastructure build-out fails to go as well as hoped.

More on Balfour Beatty

Hays

Final results 22/08/24

Shares in the recruiter Hays have had a relatively poor 2024 to date and would seem to fit in the turnaround category as far as investors are concerned. Low levels of confidence in the company’s key markets of Germany and the UK & Ireland have depressed demand and resulted in an increase in the time taken to complete a hire.

In the three months to the end of June, net fees fell by 18% and 17% in Germany and the UK & Ireland respectively, roughly matching a 17% fall for the group worldwide. Temporary hires were marginally more resilient, dropping by 14% overall compared with a 22% decline in permanent postings.

Hays’ response has been to keep the company lean. CEO Dirk Hahn expects market conditions to remain challenging in the near term and is focused on driving consultant productivity and tight cost control. Annualised savings in the current year of around £60 million – £30 million of them structural – looks impressive in the context of group profits.

Analysts’ estimates compiled by Hays suggest operating profits of £105 million for the latest financial year rising to £158 million in 2026. If such growth is achieved the company’s current valuation of around 18 times earnings will start to look rather more tame.

More on Hays

Five-year share price performance table

Past performance is not a reliable indicator of future returns.
Source: FE, 1.8.19 to 1.8.24 Basis: Total returns in GBP. Excludes initial charge.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.