The FTSE stock in my headlights

The company I like is Kingfisher (LSE:KGF). The FTSE 100 stalwart has a dividend yield of 5.95%, with the share price down 35% over the past year.

Let’s address the fall to begin with. A good proportion of this (16%) has occured in just the past three months. This ties in with broader concerns in the market around high inflation and how consumers are feeling the squeeze on how they spend their money.

This negatively impacts Kingfisher because it sells directly to the public. It owns DIY store operators such as B&Q and Screwfix. It has the double whammy of lower customer demand and also lower profit margins/higher prices due to inflation.

I accept the mix isn’t ideal, but this doesn’t put me off buying the stock for income. The lower share price allows me to benefit from a higher dividend yield. Assuming the dividend per share remains the same, a fall in the share price raises the yield.

Further, I think the company will do better over the next six-to-12 months even if the UK economy struggles. I think we could see a reversion to pandemic behaviour when people look to complete DIY projects themselves. This won’t be due to lockdowns, but rather to save cash on paying a professional to do that job.

Working through the numbers

From an income perspective, I usually start by thinking how much I want to earn over the course of a year. The annual figure is the starting point, as the frequency and timing of dividend payments throughout the year differs from firm to firm.

For Kingfisher, it usually pays an interim and a final dividend in a year. This totalled 12.4p per share over the past year. If I allocate £2,000 to the stock, I’d be able to buy 960 shares, using the current share price. This would mean that I’d get £119.04 over the course of the year.

Currently, I don’t have £2,000 to allocate to this stock. What I’m going to do instead is invest £300 a month and build up to earning the passive income. I accept that the share price each month could be different to what it is now. However, this works both ways. It might be lower, allowing me to benefit from a higher yield. Or it might have jumped, in which case my earning potential falls for that month.

Either way, I think it’s a sustainable way of me getting exposure to a downtrodden FTSE 100 stock that continues to pay out generous levels of dividends. On that basis, I’m looking to start investing next month.

Aviva

Aviva (LSE: AV) is a British multinational insurance company. It has millions of customers across its core markets. Aviva is also the UK’s largest general insurer. This week, a non-executive director purchased shares using a proportion of their net director fees.

The insurance giant has suffered a rather tumultuous week, dropping more than 10%. This is due to fears that the company’s pensions and investment management divisions could suffer greatly from the sell-off in gilts. That being said, the purchase from non-executive director Pippa Lambert could hint that insiders don’t think the overall market reaction this week will affect Aviva in the long term.

• Name: Pippa Lambert
• Position of director: Non-Executive Director
• Nature of transaction: Share Purchase Scheme (Partnership Shares)
• Date of transaction: 27 September 2022
• Amount bought: 1,288 @ £4.19
• Total value: £5,393.40

Kingfisher

Kingfisher (LSE: KGF) is an international home improvement company. The firm has over 1,500 stores and numerous household brands under its group. These include the likes of B&Q, ScrewFix, and TradePoint.

The FTSE 100 company reported that its CCO sold a rather substantial number of shares earlier this week. That being said, it’s worth noting that these shares were, in fact, sold on 21 September 2022. Still, the director dealing doesn’t help shore up investor confidence after Kingfisher posted earnings that saw profits slump by 30% on an annual basis.

• Name: Sebastien Krysiak
• Position of director: Chief Commercial Officer
• Nature of transaction: Sale of shares
• Date of transaction: 21 September 2022
• Amount sold: 20,132 @ £2.35
• Total value: £47,346.44

DS Smith

DS Smith (LSE: SMDS) is a multinational packaging business. It manufactures sustainable corrugated case materials and specialty papers. In addition to that, it also provides recycling and waste management services along with plastic packaging that is reusable and recyclable.

This week, a couple of huge director dealings were reported by the FTSE packaging company. Among this, a group finance director as well as a non-executive director opted to buy and sell shares in large volumes. It’s worth noting that the following transactions occurred in the previous week and were only reported this week.

• Name: Adrian Ross Thomas Marsh
• Position of director: Group Finance Director
• Nature of transaction: Deferred Share Bonus Plan
• Date of transaction: 23 September 2022
• Amount vested: 79,617 @ Nil
• Total value: N/A

• Name: Adrian Ross Thomas Marsh
• Position of director: Group Finance Director
• Nature of transaction: Sale of shares
• Date of transaction: 23 September 2022
• Amount sold: 38,493 @ £2.64
• Total value: £101,429.06

• Name: Alan Johnson
• Position of director: Non-Executive Director
• Nature of transaction: Purchase of shares
• Date of transaction: 23 September 2022
• Amount sold: 12,596 @ £2.62
• Total value: £32,999.84

Types of shares

To provide context, there are a few types of shares that can be purchased by directors. Some directors opt to purchase shares via the open market. Having said that, directors also have the option to purchase and receive shares via a share incentive plan (SIP).

A SIP is an employee plan for companies within the UK to flexibly award shares to employees. Publicly listed companies normally exercise this option because it’s tax-efficient for both the employer and its employees.

On this occasion of FTSE director dealings, Aviva’s Lambert purchased over a thousand Aviva shares using a proportion of her net director fees. Evidently, this is paid on a quarterly basis with the goal of acquiring Aviva shares on a continuing basis.

Meanwhile, the Kingfisher CCO opted to sell his shares after a dismal report from the company last week. DS Smith’s Group Finance Director also opted to follow in his footsteps by selling a number of his shares. This comes following the director’s decision to exercise the option to redeem almost 80,000 shares that were granted on 15 July 2019 under the company’s Deferred Share Bonus Plan. He subsequently sold approximately 38,000 of those shares. Having said that, the sale of shares conducted were for tax purposes, rather than a decline in confidence. On the other hand, Johnson decided to purchase DS Smith shares direct from his pocket.

The shares are currently trading in bearish territory. A value investor like me rubs his hands at the potential of getting my hand on an under-priced stock.

However, I do not believe Kingfisher is one of these. The stock looks like a value trap to me, and here are the reasons why I will avoid buying in this business cycle.

Bearish market for retailers

I would be naive if I did not remind myself of the mid-to-long term outlook for the global economy when making an investment decision. High inflation and interest rate rises create challenging conditions for most businesses. I don’t see these conditions fading anytime soon either.

City economists are similarly pessimistic. A recent analyst note from Goldman Sachs forecast a recession at the end of this year, lasting all the way until 2024.

I am certain that this not ideal for a company like Kingfisher. The company relies on discretionary spending and its products are not essential for everyday life. Therefore, the hit to the business from consumers tightening their belts could hammer earnings for a good while yet. It is something I believe investors have priced into the discounted Kingfisher stock currently. The shares are down 30% year to date.

However, it is not just the Kingfisher share price that I am seeing affected. Other retailers like JD Sports and Frasers have seen an even steeper fall in share price (47% drop).

Ominous sentiment for Kingfisher shares

It must be said, that I discern a more bearish tone for Kingfisher compared to other retail and leisure stocks.

For instance, just last month it was one of the FTSE’s most shorted companies. My intuition tells me the bears are knocking on the door of the Kingfisher share price due to a combination of two things. These are intensifying competition within the DIY retailer sector, as well as some less than enthusiastic commentary from peers. For example, home improvement retailer Wickes recently warned it faces an “uncertain macroeconomic environment“. This came as the company announced weaker sales figures than the year prior.

Future prospects

Certainly, I do not think the discount on the Kingfisher share price represents a bargain. On the contrary, I believe the shares will continue to be beaten down while current conditions prevail.

Kingfisher is not the only retailer that will suffer. The DIY boom has eased, so I expect many of its direct peers to be similarly hit.

I like Kingfisher’s turnaround potential in the event of a growing economy. But, against the current backdrop, I believe the downside potential will be a drag on its valuation. The stock simply poses too much downside risk in the medium-term than my portfolio can tolerate.

Building

That’s what makes Vistry Group (LSE: VTY) look so attractive to me. The housebuilder, formerly known as Bovis Homes, will release first-half results on 8 September. The Vistry share price has been on a slide, along with the whole sector.

That share price weakness has helped push the forecast dividend yield up close to 10%, and has dropped the price-to-earnings (P/E) multiple on the stock to under six.

A lot will depend on how the property market holds up in the second half. But housebuilders that have reported so far have shown strong first-half business.

House prices in August were up 10% year-on-year, though that will surely slow.

DIY

Kingfisher (LSE: KGF) dividend forecasts suggest a yield of above 5%, which is not the biggest around. But I do like one thing about it. The dividend is growing as the share price falls.

Since slashing the dividend in response to the pandemic, Kingfisher has been rebuilding it. And for the year ended January, at 12.4p per share it already exceeded pre-pandemic levels.

What’s more, the cash was covered almost three times by earnings. Forecasts predict a modest increase over the subsequent two years. But in the current economic climate, I think any dividend rise is good news.

The company, which owns DIY chain B&Q among other retail businesses, is currently returning capital to shareholders through a share buyback programme. To me, that bodes well for its dividend prospects.

Soft things

We’ve seen another dividend recovery at Dunelm Group (LSE: DNLM), following a pandemic suspension. And again, a falling share price has helped strengthen prospective yields.

Dunelm is due to deliver full-year results on 14 September. And the home furnishings retailer has already told us of a 16% rise in sales. Digital sales, at 35% of the total, are down 11 percentage points from the year before.

So we’re seeing a weakening of the pandemic effect. But it’s still interesting to see such a high percentage for products that people traditionally like to touch and feel before buying.

Dunelm lifted its interim dividend by 17%. The same rise in the final dividend would yield 6%.

Dividends

Dividend forecasts are at best a vague indicator of the cash we might get. And I’ve seen analysts doggedly sticking to obviously unrealistic forecasts, long after investors could see they weren’t going to happen.

So I treat them with a good deal of caution. And what I want to see most is signs that a forecast might be realistic, rather than the forecast itself. We’ll know Dunelm’s for sure in September. And for the other two, I’ll be looking for evidence of strong and growing cash flow.

A pandemic FTSE 100 stock

First up is Kingfisher (LSE:KGF). The owner of Screwfix and B&Q has underperformed in 2022. The share price is down 34% over the past year, with cost inflation and supply chain problems being flagged up. Continued pressure in this regard is the main risk I see.

I think that now is a good time for me to buy the stock ahead of what 2023 could bring. My vision for next year is a situation where inflation will finally start to fall due to high interest rates. So although cost inflation should decrease, consumer spending should be tighter due to low economic growth.

Lower inflation should allow the business to be more competitive on profit margins. Money-conscious customers could also help the firm. I think we’ll see a return to a situation like the pandemic where people will return to DIY projects rather than paying for professionals to do work on their homes. This time it’s not due to being stuck at home, but rather because it’s cheaper to do things themselves rather than paying others to do it.

The current forecast pre-tax profit for the full-year is £770m, versus £949m from the previous year. I’d expect upward revisions to future trading updates, especially as we go deeper into 2023. If the share price returns to its pandemic highs, it would be almost a 60% upside from current levels.

A pivot that could pay off big

The second company I’m thinking about investing in is Hargreaves Lansdown (LSE:HL). The stock has been battered over the past year, with sharp falls relating to misses in earnings. Down 39% in a year, it’s one of the worst performing FTSE 100 stocks.

One reason I like the stock is that I feel the bad news is priced in. The 26% fall in profit before tax for the full year was widely expected. I feel that we’d have to get some fresh negative catalysts (which may still happen) to push the share price down even further. This reduces my downside risk.

The main reason I’m thinking of buying is due to the potential for wealth management next year. In the annual report, it spoke of how the addressable wealth and cash market in the UK is worth £3trn. The revenue potential here is huge.

The business also has a strong existing base of clients to pitch this to, with “engaging tools, data analytics and timely relevant nudges” all ready to be deployed. Considering that the highs of the past year represent a 100% return from current levels, the potential is large if the strategy pays off.

A concern is that this new part of the business doesn’t take off, with declining client balances and net outflows. This could hamper any share price gain for next year.

The crown has slipped

B&Q and Screwfix owner Kingfisher (LSE: KGF) did exceptionally well during the pandemic. With nowhere to go, many of us finally got to focus on those DIY jobs we’d not had time for.

Naturally, this could only last so long and it’s no surprise that demand has since moderated. However, the current cost-of-living crisis has served as a double whammy for Kingfisher. With many families now just trying to make ends meet, nothing but the most essential projects are put on hold.

This may be why the company is currently popular among short sellers. In fact, it’s even more ‘hated’ than battered cinema firm Cineworld!

Contrarian opportunity

Then again, it’s worth considering how much of this is already priced in.

Having crashed by over a third in the last year, shares in Kingfisher now change hands for just eight times earnings. We could see a huge bounce in the price if half-year numbers on 20 September are even slightly better than feared. This may be boosted further by the aforementioned short sellers rushing to close their positions. Although never guaranteed, there’s a chunky 5% dividend yield too.

Too much risk

However, I reckon there’s a chance that full-year earnings estimates might be revised down once the dust settles. Consequently, this stock may not be the bargain it appears. Therefore, I’ll be waiting for signs that we’re through the worst inflation-wise before becoming bullish about Kingfisher.

I’m more positive about another FTSE 100 stock reporting next month.

Another FTSE 100 stock that could soar

Like its index peer, shares in clothing stalwart Next (LSE: NXT) have not had a good 2022. The FTSE 100 stock has lost almost 25% of its value in the last year thanks to the dip in consumer sentiment.

Even so, it’s interesting to note that the share price has continued falling despite the company raising its guidance on full-year sales earlier this month in response to better-than-expected Q2 figures. Growth of around 6.2% is now predicted, slightly above the previous estimate of 5%. Pre-tax profit is also forecast to be £10m higher at £860m.

I wonder if, due to the ongoing hot weather, it might actually beat these projections when half-year numbers arrive on 29 September.

Better buy?

Next shares now trade at a price-to-earnings (P/E) ratio of 11. That’s actually fairly average relative to consumer stocks in general. What’s more, the £8bn cap operates in a hyper-competitive sector where customer loyalty is hard to maintain.

Then again, being a Fool means I can afford to take a long-term approach and base decisions on fundamentals.

As retailers go, Next is a cut above the rest. It’s got a solid record when it comes to generating returns on the money it invests. The management team — led by Simon Wolfson — is also highly experienced. Importantly, there’s limited interest from short sellers too.

So, while perhaps not a bargain, I do feel more confident about taking a position here in the near future.

Income stocks from finance

The first company I like is Ninety One (LSE:N91). The asset manager has a range of funds, but the focus is mostly on stocks with global exposure. Given the fact that the company has multiple funds, the share price doesn’t track the price of just one fund. It trades based on the firm’s overall business performance.

Over the past year, the share price has fallen by 12%. This has helped to boost the dividend yield to 7.44%. Most of this fall has occurred over the past month, following the release of the full-year results in May.

The results actually highlighted a record year for the company, with earnings and assets under management being the highest ever. However, the slump in the stock was due to concerns around the outlook. It noted “worsening conditions”, which has clearly spooked some investors.

I accept that 2022 is going to be a lot harder for the company to deliver profitable fund returns. This is a risk if I want to buy the stock. Yet at the same time, the asset manager has provided strong returns previously with a good track record. Therefore, I’m happy to look beyond the short term and focus on the long-term income potential.

An old star making a comeback

The second stock I’d buy for income is Kingfisher (LSE:KGF). Over the past year, the share price is down by 31%. This has been a slow grind lower, as the popular pandemic pick has followed the same trajectory as other lockdown stars.

However, I like the company despite the pandemic boost wearing off. We’ve got a cost-of-living crisis right now that doesn’t look like it’ll dissipate anytime soon. Therefore, I expect a lot of people to revert back to DIY projects in order to save money.

Given the B&Q and Screwfix brands that Kingfisher own, I think it could be well positioned to take advantage of this move.

The dividend yield for this income stock is currently at 5.06%. It’s not as high as my other pick, but I think this could be a great pick for income going forward. If sales pick up in the second half of this year, higher profits should result in a large dividend per share next year.

In Q1 results, the company noted that it was managing “inflationary and supply chain pressures”. This is a concern for me, as I anticipate that this could cause management a headache in being able to get goods delivered on time and at an acceptable price.

But the multinational home improvement giant has stalled since the summer of 2021, with its share price plummeting by roughly a third to the present day.

While Kingfisher may have been catapulted too high during the pandemic as investors put narrative before fundamentals, I think the company is now in oversold territory – its stock trading at around 75% of book value.

Tighten your utility belts

Kingfisher’s retail-centric business model is unfairly attracting investors’ scorn, as rampant inflation and the spectre of an impending recession spook the market.

In fact, a weaker consumer has historically been a boon for the DIY ethos. Doing routine maintenance yourself and repairing what you own rather than replacing it is an obvious cost-cutting strategy. During the 2008 recession, US home and garden improvement retailers Tractor Supply Co. and Sherwin-Williams Co. performed strongly for precisely this reason.

While investors have been flocking to healthcare, utilities and discount retailers looking for shelter from a possible recession, I believe DIY stores are presently an overlooked haven.

A boom in home improvement

Official data from the ONS show UK councils granted almost 4,500 applications every week to people wanting to carry out major work on their homes last year — a massive 33% increase from 2020, taking the total to levels not seen since 2007. The applications include works that need planning permission, such as loft extensions, garages, swimming pools and conservatories.

People are increasingly choosing to have their own homes done up, rather than selling up and buying a better property. That spells good news for Kingfisher’s Screwfix, which is the UK’s largest retailer of trade tools, accessories and hardware products.

Hammering home the point

In the year ending January 2022, Kingfisher reported an increase in earnings per share of 43%. The company has shown it is committed to delivering value to its shareholders, returning £300m through a buyback on 28 April.

Meanwhile, its growth story is not over, with 80 new Screwfix stores on the way in the UK and Ireland, and its balance sheet looking healthy with a positive net cash position.

Analysts expect a considerable decline in like-for-like sales across Kingfisher’s main markets in 2022/23 as the stay-at-home DIY boom softens. A 7.3% fall is forecast in the UK and Ireland, while in France a smaller decline of 2.9% is predicted.

The year-on-year contraction forecast for 2022/23 does not put a spanner in the works for me, however, as it is a natural artefact of a once-in-generation DIY boom fuelled by the whole world being confined indoors during the pandemic.

With Kingfisher well positioned to capture growth in both the DIY and DIFM (do-it-for-me) sectors across multiple European markets and its share price looking seriously depressed, I consider it an attractive buy for my portfolio.

UK markets felt the ripple of the Beijing lockdown as extended covid-19 testing was launched across the city. Further impacts were felt as concerns around China’s situation drove the price of Brent crude oil down.

Moreover, UK retail data for March showed low consumer spending, further shaking general investor confidence. However, a sharp price drop is usually accompanied by an opportunity to find cheap stocks. With recent fluctuations, let’s look at three FTSE 100 stocks I’m considering adding to my portfolio this May.

Share buyback

Taylor Wimpey (LSE: TW) announced last week that it had instructed Credit Suisse International to purchase up to £75m of its shares in March. This is part of the company’s larger £150m share buyback. Currently trading at 128p, the company will reclaim roughly 1.1m of issued shares. This should lead to a resurgence of share value for investors.

The construction company faces challenges from rising inflation rates and energy prices, which pressures the cost of living. This may undermine the future strength of the housing market.

For now however, housing prices continue to see growth. Taylor Wimpey claims this will offset labour and material cost inflation. 

Despite concerns of inflation and energy, the announced buyback, alongside prospective market resilience, encourages me to invest in this FTSE 100 stock.

Resilient infrastructure

Another FTSE 100 stock that has my interest is BT Group (LSE: BT.A). During times of high inflation and international crises, infrastructure-heavy companies (such as BT) are well-poised to counter market unrest in a portfolio, I feel.

Sitting at 176p, the stock’s recent price plunge (-3.5% in the last month) has stood out against its 12-month increase of 13%. Total net debt of £17.8m at the end of March flagged warning lights to investors.

However, the telecoms giant announced a partnership with GXO logistics back in February, aiming to transform its warehouse and transport capabilities in the UK. Large changes to supply chains appear daunting in this current market. Yet I’m confident in the company’s managerial competence, particularly given recent financial turnarounds. For example, BT managed to increase normalised free cash flow by 6%, rising to £878m.

Given strong infrastructure and intentions to expand on this due to an improving financial performance, I’ll certainly consider adding this FTSE 100 stock to my portfolio for May.

Record revenue and profits

Kingfisher (LSE: KGF) highlighted “a year of record revenue and profits” in its FY21 report. With retail profits increasing from roughly £1m to £1.15m, that 14.5% growth has prompted my interest in this UK retailer.

The DIY retailer does have risks. Sales could fall as pandemic-induced home-improvement projects are forgotten. Those who do not forget may be discouraged anyway by aforementioned rising inflation.

However, the company announced a return of over £550m to shareholders. Some £300m of this will be delivered through a share buyback, with the remaining distributed through dividend.

With significant profit growth, and promises of a substantial buyback, I’ll be looking to add this FTSE 100 stock to my portfolio this month.

Royston Wild: BAE Systems 

The BAE Systems (LSE: BA) share price lifted off in February as tragic events in Ukraine unfolded, and it’s stayed strong since then. The war in Eastern Europe illustrates the tense geopolitical backdrop that I think will support sustained and strong demand for BAE Systems’ defence products. 

In fact, BAE Systems has grown earnings in four of the past five years as global arms spending has risen. The only reversal came in 2020 when Covid-19 disruptions hit the bottom line. City analysts expect profits to keep heading northwards this year, and next too, as the West bumps up arms spending in light of recent events.

I think BAE Systems could be a particularly strong performer in May too as rising fears over rampant inflation boost demand for safe-haven shares like defence companies. 

Royston Wild does not own shares in BAE Systems.

Zaven Boyrazian: Alpha FX Group

Alpha FX (LSE:AFX) is a financial services group specialising in currency risk management and alternative banking solutions. The firm helps businesses mitigate foreign exchange risk while simultaneously enabling almost instant enterprise-scale international transactions – something not possible with archaic methods like wire transfers.

Corporate banks offer similar solutions and are a significant source of competition. However, these are often prohibitively expensive. By charging on a per-transaction basis, Alpha FX enables its clients to overcome this barrier to entry.

With an impressive track record of double-digit growth and its 2022 performance continuing to impress, I think it’s time to add more shares to my portfolio today.

Zaven Boyrazian owns shares in Alpha FX

Edward Sheldon: Smith & Nephew

My top British stock for May is Smith & Nephew (LSE: SN). It’s a healthcare company that specialises in joint replacement systems.

There are a couple of reasons I like the look of Smith & Nephew right now. One is that there’s a huge joint replacement backlog globally at the moment due to Covid-19. So, the company appears to be well positioned for growth in the years ahead.

Another is that the healthcare sector tends to be quite defensive in nature. So, the stock could hold up relatively well if we see a recession.

It’s worth pointing out that Smith & Nephew shares are not cheap. So, this adds a bit of risk. All things considered though, I see a lot of potential here.

Edward Sheldon owns shares in Smith & Nephew.

Stephen Wright: London Stock Exchange Group

I think that my top stock for May is one of the best companies in the UK. It combines a core business that has virtually no competition with other operations that have high margins, low costs, and generate huge returns.

The stock is London Stock Exchange Group (LSE:LSEG). The company operates the exchanges on which financial market transactions take place. These have high barriers to entry. But the company also has various other operations, including data, fixed income trading, and clearing services.

Stephen Wright does not own London Stock Exchange Group.

Michelle Freeman: Wizz Air

It’s no surprise to anyone that airline shares have had a rough time over the last two years. But with Wizz Air (LSE: WIZZ) down over 30% since the start of the year, I think its shares look potentially oversold compared to others. 

Yes, Wizz has more exposure to those Eastern European travel destinations that are impacted from the on-going war. But it has been diversifying its network and increasing capacity recently, including picking up more Gatwick slots from Norwegian.  

With the WTTC reporting triple-digit growth compared to last year, I wouldn’t be at all surprised to see the share price benefit accordingly. 

Michelle Freeman does not own shares in Wizz Air.

Andrew Mackie: Anglo American

My top stock for May is Anglo American (LSE: AAL). This may seem like a strange choice, given the 20% share price fall in the three days following a disappointing Q1 production report.

However, I would look beyond the headlines. At the moment, a lot of miners are suffering with high input costs, particularly diesel, Covid-related absences and production issues. However, all this is likely to do is push up prices even further.

The business remains a cash-generating machine, with a dividend policy of returning 40% of underlying earnings to shareholders.

For me, the commodities cycle is still very much in its early innings. With such a diversified portfolio, the sell-off has presented a good entry point for long-term investors.

Andrew Mackie does not own shares in Anglo American.

Andrew Woods: Tullow Oil

Tullow Oil (LSE: TLW) is an oil and gas exploration and production firm. It operates globally, but it has larger operations in Ghana and Kenya in Africa, and Guyana in South America.

The pandemic hit the business hard, resulting in a $1.2bn pre-tax loss in 2020. It recovered, however, to post a $200m pre-tax profit the following year.

In March, it increased its stake in two oil fields in Ghana, potentially increasing production by 4,000 barrels of oil per day. With oil prices at high levels, I think this firm could be a top stock for me in May.  

Andrew Woods has no position in Tullow Oil.

Paul Summers: XP Power

Having once made a big profit on the stock, I’m starting to think about buying XP Power (LSE: XPP) again. The share price of the critical power solutions provider has tumbled in the last few months due to a resurgence of Covid-19 in Asia, higher costs, and limited component supply.

Despite these headwinds, business is ticking along nicely. XP had a record order book of roughly £260m moving into Q2.

The valuation of 17 times forecast earnings looks pretty reasonable to me. There’s also a well-covered dividend to keep investors happy while the dark clouds pass. 

Paul Summers has no position in XP Power

John Choong: Dunelm

Dunelm (LSE: DNLM) was predicted to falter after Covid restrictions were lifted. But its most recent earnings report showed a 25% increase in its profits, with total sales up 10.6% year over year. Additionally, Dunelm has managed to maintain healthy margins of 10.8% whilst boasting a stellar balance sheet with zero debt.

Although its stock has taken a plummet due to disappointing retail sales figures, the fine print proves that the British retailer remains immune for the time-being, as household goods stores saw a 2.6% increase in sales. This is backed up by Dunelm’s own numbers, with an 8.5% increase in active customer growth.

John Choong has no position in Dunelm.

Roland Head: Redrow

I am picking FTSE 250 housebuilder Redrow (LSE: RDW) as my top stock for May. I think that shares in this founder-backed group could offer impressive value.

The risk of a UK economic slowdown is the main concern here. That could hit sales. But recent trading updates have not suggested any slowdown in demand for new housing.

In Redrow’s latest results, the company increased its sales and profit guidance for 2022 and said that profit margins were rising despite higher costs.

With the stock trading on six times earnings and offering a 6% dividend yield, I think Redrow offers excellent value.

Roland Head does not own shares in Redrow.

G A Chester: Integrafin Holdings 

Integrafin Holdings (LSE: IHP) owns Transact, one of the largest independent platforms serving UK financial advisors and their clients. It may not be as well-known as direct-to-consumer operator Hargreaves Lansdown, but it has a strong record of growth. 

Revenue has increased at a compound annual rate of 12% over the last four years and earnings have advanced at a rate of 14%. Negative market movements in asset prices are a risk, and wage inflation is also currently a friction. 

Nevertheless, after recent share-price weakness, and with a tailwind of structural growth in the UK wealth-management market, Integrafin looks a quality business on sale cheap. 

G A Chester has no position in Integrafin Holdings. 

Alan Oscroft: Kingfisher

At around the 250p mark, DIY specialist Kingfisher (LSE: KGF) looks cheap to me. The owner of B&Q and Screwfix staged a strong pandemic comeback. But that’s reversed in 2022, for a 30% fall over the past 12 months. The shares are now on a trailing P/E of only around seven, with dividend yields above 3.5%.

My main concern is that free cash flow for 2021-22 fell sharply. With net debt of £1.6bn, that could bite. But the company is buying up its own shares right now. I’d do the same.

Alan Oscroft has no position in Kingfisher.