The extraordinary moves in the global stock market matter not just because of the uncertainty about the response of how the government could react economically, but the impact on your Stocks and Shares ISA, too!

Strategic risk

Investing in the FTSE 100 could come with some risks, no doubt. It may be plausible to assume the market could continue to fall, as I think investors have limited confidence in the government’s ability to support the economy through this coronavirus epidemic.

That may leave you questioning, what is the best alternative?

I believe the best place for you to look at is the governmental funding of public projects. This sector remains a growth industry during a recession with the intent to stimulate the economy.  

For example, the company that sources its revenue from government contracting could help reduce its dependency on the private sector. Therefore, I think risk to market exposure could be minimised, and the stock may be a lot more resilient.

On the fast track

Kier (LSE: KIE) is a construction company with a market cap of £160m. It is contracted to build the HS2 high-speed rail enterprise, bringing in £250m of revenue per annum over the next six years. 

A previous article explaining why Kier could do well financially was one step ahead of the market. Kier’s share price jumped up by 30%, from 100p per share, on March 4^th, to 130p a day later. The rise in share price was a result of half-year results being better than expected.

Despite its past struggles, I think Kier seems to be turning itself around. The market wants to see that expenses, as well as debt, are under control. In my opinion, Kier is making all the right sounds with its improved balance sheet.

The introduction of its cost-cutting programme is expected to reduce inefficient costs of up to £65 million. Meanwhile, the company’s underlying pre-tax margin grew from 1.5% to 1.7%, at the end of this year.

I think the announcement of work across an 80km section of the new high-speed rail link could present long-term benefits for Kier.

Just over 65% of Kier’s construction work is sourced through long-term frameworks. I think this is a clear indicator of the company’s success.

In my opinion, the near-certain generation of cash sourced from public construction projects could improve the earnings outlook for Kier in a time where private construction starts to dry up.

Long-term investment

Tax-free returns from stocks held in an ISA, with a threshold of £20k each year, could be an excellent time for you to use this year’s allowance.

In my opinion, holding Kier is investing in a long-term view. Buying bargains now could pay off when signs emerge that the worst of the coronavirus is still to come. When that happens, you could be holding a high-quality share.

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John Wallace owns none of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

In my opinion, Lloyds faces a deterioration in trading conditions, with pitiful returns for future investors.

I believe the results from the final quarter of 2019 suggests the FTSE 100 bank could deliver disappointing results for the future. Net income fell 4% year-on-year to £17.1bn, with both interest and income falling.

A declining interest rate and an increasingly competitive mortgage market could result in new loans being less profitable than previous ones.

Investors are currently witnessing conditions deteriorate significantly from the impact of the coronavirus. An additional cut in interest rates could take place in order to stimulate economic growth. This could be negative for the Lloyds share price, as margins may be squeezed even further.

If this is the case for Lloyds, I think it could become increasingly difficult to encourage growth. Therefore, a reduction in dividends paid could become a real possibility, something that makes the stock popular with investors today.

What does the future hold for Lloyds’ share price?

As Britain’s biggest mortgage lender, due in part to its Halifax business, the surge of PPI provisions this year has cost Lloyds an estimated £2.45 billion, up from £750 million last year. This resulted in earnings per share falling by 36% to 3.5p.

An additional increase in bad loans has further led to a decline in operating costs, resulting in underlying profits falling by 7% to £7.5bn.

In my opinion, its low valuation fails to compensate investors for earning risks. Economic and political uncertainty could outweigh the reward from an ever-increasing risk of holding the stock.

It may be the case that the Lloyds share price is no longer as attractive to buy as it once was – and just like the car, others could come to replace the three-legged horse.

Undervalued

Barclays’ (LSE: BARC) share price has sunk 27%, at the time of writing, since late October 2019 to a six-month low of 140p. Despite this, I think the stock is undervalued. Its strong financial performance and encouraging growth prospects makes Barclays a hidden gem for investors.

Profit before tax, excluding litigation and conduct costs, is £6.2bn, up from £5.7bn in 2018. Meanwhile, it has outperformed on trading revenue from commodities, while fixed income increased by 19%.

I believe these are excellent indicators of the progress Barclays has been making, and makes the stock a safe investment. Especially if a bear market is creeping into your portfolio!

The City predicts Barclays’ earnings to rise 65% for 2020, and the bank has revealed an increase in the total shareholder dividend for the year of just over 38% to 9p per share.

In my opinion, Lloyds may continue to underperform with its current structure facing an inevitable decline in market conditions, leading to a reduction in its dividend yield. Barclays, on the other hand, could increase its dividend yield, attracting investment and increasing its share price.

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John Wallace holds shares in Barclays and no shares in Lloyds. The Motley Fool UK has recommended Barclays and Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The question you must ask is, in my opinion, where will opportunity be found?

A great buying opportunity right now

At the time of writing, Tesco (LSE: TSCO) shares have fallen to 225p amongst the market sell-off. Meanwhile, a dividend yield of 3.4% is offered.

Tesco shares have performed strongly in the past. From a low of 150p in 2015, the share price rose nearly 70%, trading at highs of 255p in February 2020.

I believe the combination of this dividend and an undervalued share price could yield a 6% per annum return. If you’re bullish for Tesco’s future, that’s a tidy discount.

Disciplined strategy

I think Tesco is now a capital-disciplined organisation and a cash compounder. Complementary acquisitions have helped Tesco to expand overseas more aggressively, gaining a firm foothold in international grocery markets. In doing so, this has placed Tesco in a unique position in wholesale markets worldwide.

The ability for Tesco to adapt and recover from profit losses is impressive. Net profit should come in at £1.7bn for fiscal 2020, rising to £1.8bn for fiscal 2021 — double the £974m net profit figure reported in 2014.

In my opinion, earnings growth is one of the many reasons why the group’s profits have surged over the past two years.

Every little helps

Competition with Sainsbury’s has placed pressure on Tesco’s financial performance in the past. In my opinion, Tesco has managed to keep its head above water despite its past struggles.

Under Dave Lewis, Tesco has repaired its profit margins and returned to growth. Debt levels are down and the whole business appears to be much healthier than it was five years ago.

Miraculously, Tesco’s net income jumped from £138m in 2016 to £1.3bn at the end of 2019. Analysts also expect earnings to rise by about 8% in 2020/21.

At the time of writing, Sainsbury’s reported an operating margin of 1.9% and a return on capital employed of 33%. In contrast, the figures for Tesco were 4% and 6.4%. I believe these figures alone show how Tesco has a leading competitive edge.

Perhaps every little does help after all.

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John Wallace owns shares of Tesco. The Motley Fool UK has recommended Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

It is hoped this large project will nourish an untapped source of wealth across the ‘northern powerhouse’ – and perhaps your portfolio, too!

Undervalued

Balfour Beatty (LSE: BBY) is trading 51% higher at the time of writing today than it did six months ago. The UK’s largest construction group – with a market cap of 1.95bn and a 10% increase in pre-tax profits this year -merely outpaced itsstruggling rivals. 

What makes BBY undervalued? Impressively, the annual rate of growth for Balfour Beatty’s earnings is 13%. It is predicted BBY’s profit margin will have expanded from 2.0% to 2.4% by 2022.

With a current price to equity ratio of 10.32, compared with the industry standard of 14.24, this signifies its current share price is undervalued. Therefore, by outperforming earnings forecasts, I believe a rise in share price is likely.

Positive news flow

The announcement of a two-part design and build contract, valued at £2.5 billion, awarded from the HS2 project helped increase BBY’s order book by 5% from £12.6bn in 2018 to £13.2bn in 2019. This positive news flow is one of many announcements shareholders will prosper from, in my opinion.

If you consider the future potential of its earnings outlook, I think Balfour Beatty is a great value investment.

Ready for boarding

Over the past month, the Kier Group (LSE: KIE) share price has increased by 87% at the time of writing, from 80p to 149.5p. This came after Prime Minister Boris Johnson confirmed the continuation of the HS2 project, for which Kier is a contractor.

This gem-like investment is an attractive alternative, but is the stock ready for boarding?

The company’s share prices in the past two years has fallen 85%. Kier was weighted down by average month-end net debt of £422m during the 2018/19 financial year. However, management often overlooks a lot of off-balance-sheet debt when publishing net debt.

Due to the company not publishing these figures, it is difficult to judge if the debt amount will be a problem or not. Since most borrowing is in joint ventures, it may not, therefore, be relevant to the business, and Kier may be financially stable.

Despite Kier’s valuation, HS2 is helping to drive Kier’s share price. The impressive performance of the business winning over new contract agreements has helped to strengthen the company’s performance.

Perhaps some brave Fools may be ready to board the stock.

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John Wallace owns none of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Britain being a nation of shopkeepers leaves investors to question, in this time of peril, whilst seeking sanctimony of safety from a declining high street, where do our best stores lie?

A Sporting Success

JD Sports (LSE: JD) now trades at an all-time high, with a sharp rise of 83% in its share price over the past year alone at the time of writing. The sports, fashion and outdoor retailer has 2420 stores worldwide, with a market cap of £8.44bn, whilst year on year revenues grew by 49.23% from 3.16bn to 4.72bn. It may just turn out that the sports retailer did ‘just do it’ after all.

Surely JD is overpriced? Well, it is strongly positioned to increase its global market share of retailing. Assertive international expansions through mass acquisitions have helped build up momentum with strong support from key brands.

Remarkably, an average store generates £1k per sq ft. Higher operating cashflows have enabled management to drive store rollouts, where acquisitions of retail chains, like Footasylum, have encouraged a higher share price.

The ability for JD Sports to stay ahead of trends, adapting to the digitalisation of the retail industry and manoeuvre itself towards upcoming events such as Euro 2020 and The Olympics, has helped to validate a stronger brand, positioned to increase market share and consolidate the sports retailing market globally.

A New Record

The Dunelm Group (LSE: DNLM) share price has more than doubled since February 2019, reaching all-time highs to £14.04 this month. A new record, £585m in revenue of which 33% derived from online sales, has proven DNLM’s strategy of focusing on online sales to have paid off.

Over the past three years, Dunelm failed to grow earnings per share (EPS), which fell 0.2% annually. Given revenue growth of 7.8%, it may be the case that DNLM sacrificed current EPS to drive growth.

The robust performance by Dunelm is much more impressive with the decision not to participate in Black Friday sales last November, where investors celebrated as underlying sales increased by 11%, far exceeding expectations.

Not only has DNLM set a new record, a precedent has been established. As competitors, such as John Lewis of Hungerford, continue to neglect and disappoint investors with pitiful earnings, it seems Dunelm, the UK’s leading home furnishing retailer, could be a glamorous stock to frame in your portfolio.

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John Wallace has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.