However, some equities have lagged the market. And it’s these businesses I plan to concentrate my efforts on buying during the next few weeks.

I reckon that as these firms report their half-year results and issue future trading updates, the market will revalue the businesses. That’s assuming, of course, the updates are positive. 

As such, here are three stocks and shares I’d buy in August. 

Companies on offer 

The first on my list is the Bisto to Mr Kipling owner Premier Foods (LSE: PFD). While shares in this company have added around 30% over the past year, I think the stock remains undervalued. 

According to a trading update published today, sales across the group for the 13 weeks ended 3 July were 6.3% above 2019 levels. This was at the top of expectations for the period. 

International sales are also growing strongly. Global sales increased 17% compared to 2019 levels in the period. 

Based on these numbers, management now expects pre-tax profits for the year to come in at the top end of expectations. With this growth coming through, I reckon the stock’s current price-to-earnings (P/E) multiple of 9.4 undervalues the business. This is why I’d add the firm to my basket of stocks and shares. 

Key risks and challenges the business might face are rising costs, which could weigh on profit margins. Competitive pressures may also hurt growth and lead the firm to spend more on marketing. Both of these factors could hurt profit growth. 

Insurance growth

Another company I’d buy for my portfolio of stocks and shares in August is Lancashire Holdings (LSE: LRE).

Rates are rising across the insurance industry, and many companies in the sector are reporting earnings growth as a result.

Unfortunately, Lancashire’s share price doesn’t reflect this. The stock’s fallen nearly 15% over the past year.  

I think investor sentiment towards the business could change when it publishes trading updates later in the year. With the rest of the sector experiencing growth, I reckon the company will report expanding earnings as well. 

That said, we’re currently in the middle of the Atlantic hurricane season. A large hurricane could lead to significant losses for the insurance industry. This would almost certainly reduce Lancashire’s profits for the year. This is one risk I’ll keep my eye on. 

Trading stocks and shares 

The final company I would buy for my portfolio is stockbroker Numis (LSE: NUM). Shares in this business have increased by around 25% over the past year.

However, with revenue and underlying operating profit increasing 83% and 325% respectively in the first half of 2021, it looks as if the stock is lagging the group’s fundamental performance. 

The company has already said it believes this performance will continue for the rest of the year. As such, I think it could only be a matter of time before the market gives the enterprise a higher valuation. 

Still, Numis’ performance is tied to the general performance of the overall stock market. If volatility returns to stocks and shares, profits could fall. In this situation, the valuation of the business is likely to decline.

UK shares to buy

The first company is the London Stock Exchange (LSE: LSE).

The owner of the UK’s primary equity market and other financial businesses, this company essentially owns the plumbing of the UK financial system. I think this gives it a unique competitive advantage. As long as the country’s financial system continues to function, I reckon the LSE should continue to grow. 

That being said, there have been periods in the past when the group has struggled. These include the financial crisis. The enterprise also has a lot of debt and has borrowed more to fund the acquisition of information provider Refinitiv. This elevated level of borrowing could be a significant risk for the group. 

Still, I would buy this company for my portfolio UK shares today, considering its competitive advantages and position in the UK economy. 

Property market 

Another company I would buy is LSL Property Services (LSE: LSL). 

This operation owns a range of businesses covering everything from the buy-to-let market to estate agents and mortgage surveyors. It conducts mortgage valuations for some of the largest mortgage lenders in the country. 

While this does mean LSL’s fortunes are tied to those of the UK property market, I think its diversification gives the group an edge. For example, despite a 14% decline in revenues last year and one of the worst economic depressions in UK history, LSL still reported net income of £16.3m. 

Of course, there’s no guarantee the company’s diversification will make it immune from any housing market stress. A sudden increase in interest rates could cause substantial stress in the property market. This may have a significant negative impact on the group as every part of the market may suffer. 

Even after taking this risk into account, I would still add LSL to my portfolio of UK shares today for its growth potential. 

Insurance income

The final company I would buy is Lancashire Holdings (LSE: LRE). The Lloyd’s of London insurer is benefiting this year from a substantial increase in insurance rates. In some segments of the market, rates have risen by more than 10%. This implies insurers such as Lancashire are on track for a strong performance this year.

However, they are still counting the cost of the pandemic, the final cost of which is not yet known. It could be substantially more than current predictions, which means the sector may have to put aside more money than expected.

This is probably the most considerable risk Lancashire faces right now.

I believe rising rates should go some way to mitigating the risk outlined above. That’s why I would buy the stock for my portfolio of UK shares, even though there could be a significant negative surprise on the horizon. 

FTSE 250 growth

The first is magazine publisher Future (LSE: FUTR). What I like about this business is the fact it has a consistent growth track record.

Over the past five years, management has steered the business from acquisition to acquisition. These deals have helped the firm build a strong portfolio of publishing assets. This, in turn, has attracted advertisers to its platform. By increasing the number of publications it owns, Future has been able to offer advertisers a better package, which has led to increased revenues and profits for the group. 

The next acquisition is the owner of GoCompare. While this is larger than anything Future has completed before, I think it’s a sensible decision. The deal will take the company into the highly lucrative comparison market, where it can use its existing clout to drive better deals with advertisers. 

As such, I reckon this FTSE 250 growth stock can continue to produce high total returns for investors. 

Race for space

One major trend that’s emerged this year is the so-called ‘race for space’. Homebuyers have been rushing to snap up properties with large gardens, which has pushed up prices in the most desirable areas. It’s also pushed up sales of DIY and home improvement products. That’s been a boon for Marshalls (LSE: MSLH). 

The FTSE 250 supplier of hard landscaping products recently reported sales to the domestic end of the market were up 10% year-on-year during the four months to the end of October. This improvement allowed the group to repay all furlough monies received by the government during 2020, as its financial position was better than expected. 

I think this year’s trading performance is going to help the group meet its near-term goals. For example, the company’s debt has fallen, which should provide it with more financial firepower to chase growth in the years ahead. At the same time, the UK’s buoyant housing market may lead to increased demand for its landscaping products. 

Based on these tailwinds, I’m optimistic about the group’s long-term potential. 

Insurance income 

The coronavirus pandemic has also forced significant changes on the insurance industry. Claims related to the pandemic have cost the sector hundreds of billions of dollars, and companies have reacted by increasing the prices they charge to clients. 

This could be good news for FTSE 250 group Lancashire Holdings (LSE: LRE). The specialist insurance organisation managed to avoid the worst of the pandemic, but it’s still going to benefit from rising insurance prices. It recently raised money from investors to capitalise on the improving market environment, and that suggests the company could see strong earnings growth in 2021. 

Lancashire has an impressive history of profitable underwriting. When many other companies have struggled, it has still turned a profit. What’s more, the business tends to return almost all of its net income to investors with dividends. In the past, that’s produced a dividend yield of nearly 10%. 

While the company won’t be returning extra cash to investors over the next 12 months, I think the business will resume this policy in the next few years.

Over the past five decades, the group has completed a string of deals in the sector snapping up some of the most significant players in the market.

Buffett likes to buy well-run, profitable insurance companies that have a track record of sensible underwriting. Firms like Lancashire Holdings (LSE: LRE).

Well-diversified

Lancashire is really three different businesses: Lancashire, Cathedral and Kinesis. As my Foolish colleague Kirsteen Mackay recently explained, Lancashire and Cathedral provide specialist insurance against catastrophic events such as hurricanes. They also offer unique insurance policies for the property, marine aviation and energy sectors.

On top of this, the Kinesis segment manages reinsurance for the business. It offers a management service for third parties who want to invest in the insurance industry but don’t know where to start.

Lancashire’s profitability track record is outstanding. The group’s 10-year average combined ratio (a measure of insurer profitability) is around 70%, compared to the industry average of nearly 100% (the lower the ratio, the better).

On top of this, management has adopted a policy of paying out as much capital as possible to shareholders. Shares in the insurance group currently support a regular dividend yield of less than 2%, but the company regularly distributes special dividends, which has jacked up the yield to more than 10% in the past.

Analysts are forecasting a total yield of 5.4% for 2019.

Sector leader

Another insurance business that stands out as a sector leader is Sabre Insurance (LSE: SBRE). Sabre stands out because the company has managed to carve out a niche for itself in the highly competitive car insurance sector.

The group’s three direct brands are Go Girl, Insure2Drive and Drive Smart, all tailored specifically to cater to individual needs. While they may be slightly more expensive than other policies, customers seem happy.

Revenue has grown at a compound annual rate of around 10% over the past five years, and City analysts are expecting the company to report a net profit of £50.2m for 2019.

Based on these figures, the stock is currently trading at a forward P/E of 15.3. This is slightly above what I would consider an appropriate valuation for a company that’s for not expected to report any earnings growth for the next two years. However, like Lancashire, Sabre likes to reward its investors with cash payouts.

This year, city analysts are forecasting a full-year dividend of 20.2p, which gives a dividend yield of 6.8% on the current share price. Sabre’s niche brands, as well as the company’s customer loyalty and cash generation, are the key reasons why I believe Buffett would be interested in adding this stock to his portfolio.

Two FTSE 350 insurers have caught my eye. Lancashire Holdings (LSE: LRE) and Hiscox (LSE: HSX).

Catastrophic event insurance

FTSE 250 Lancashire Holdings is a small independent insurer specialising in catastrophic events such as hurricanes, along with dedicated cover for aspects of property, marine, aviation and energy sectors.

Global warming dictates that extreme weather is likely to increase in frequency and intensity as time marches on. Insuring ageing oil rigs and natural disasters in the face of climate change may seem like tempting fate, throwing caution to the wind and taking on precisely the opposite of carefully managed exposure. However, that’s exactly what this business is set up to deal with, so in areas where natural disasters are a possibility, premiums are set accordingly and portfolios structured to ensure loss to the firm is minimal. Coverage over a range of sectors also helps diversify the risk.

It sells policies through three platforms: Lancashire, Cathedral and Kinesis, each of which provides tailored underwriting, ensuring a balance of risk and return. Through Kinesis, its reinsurance fund, Lancashire has access to investor capital in loss situations rather than relying solely on its own.

The dividend appears low at a yield of 1.7% but this is topped up annually with a ‘special’ discretionary dividend, which regularly brings it up over 6%. This strategy means that the company can return any excess capital to shareholders in a good year and maintain capital for paying out excessive claims if necessary.

Lancashire has a debt ratio of 63%, but this looks favourable to me as gross premiums written increased by 94% in the fourth quarter of 2018. 

Resilience in the face of adversity

FTSE 100 company Hiscox, together with its subsidiaries, also provides insurance and reinsurance services. Over the past five years, Hiscox’s share price has steadily climbed.

The two biggest aspects of the group’s income come from big-ticket business, such as disaster cover, and smaller retail business, which is less volatile and grows between 5-15% per annum. At the end of May the company announced a new product specialising in Cybersecurity – CyberClear365 – supporting clients facing cyber challenges.

Hiscox has a higher debt ratio than Lancashire at 79%, but its PEG ratio is very low at 0.20, which is an excellent indicator of value.

It returned 11% over the past year, which outperformed the insurance industry’s -3.4%. Although this is another company with a low dividend yield at 1.95%, rumour has it that this is likely to increase considering future revenue growth rate is approximately 15%. 

Insurance premiums are the bane of our lives, having to spend hard-earned cash on a ‘what if’ possibility. Nowadays we are actively encouraged to buy insurance for anything and everything: appliances, pets, natural disasters, risk of redundancy, critical illness or death. So why not jump to the other side and take advantage of the gains these insurers make?  

I consider these to be two resilient companies in a volatile sector, and would contemplate adding both to a long-term portfolio.

Today I want to look at the good (and bad) news from the FTSE 100 firm’s first-quarter numbers, and give my view on the shares. I’ll also take a look a smaller dividend stock with a tempting 6%+ yield.

Ahead of expectations

A new two-part HIV treatment and the shingles vaccine Shingrix helped Glaxo deliver sales and profits that were comfortably ahead of analysts’ forecasts during the quarter.

The group’s sales rose by 5% to £7.7bn, compared to forecasts of £7.5bn. Adjusted earnings climbed 18% to 30.1p per share, comfortably ahead of forecasts of 26.1p.

Several new respiratory products also delivered strong growth, with sales rising by 25% to £631m. However, this gain carries a sting in the tail, as I’ll explain.

Cheap copy drugs pose threat

Glaxo warned that despite its strong first-quarter performance, expectations for a 5%-9% fall in adjusted earnings this year are unchanged.

Why? One of the firm’s most successful medicines, asthma drug Advair, is likely to start losing sales to a much cheaper generic alternative, which was recently approved by the US authorities.

Forecasts for the full year are also dependent on the firm’s consumer healthcare deal with Pfizer completing by the end of the year. As I’ve explained before, I think this deal should eventually help to secure Glaxo’s dividend and reduce its debt load.

For now, the firm expects to maintain the dividend payout at 80p per share, giving Glaxo stock a forecast dividend yield of 5.1%. Although this payout looks stretched to me, I still think these shares are likely to be a good long-term buy for income investors.

Should you buy this 6.6% yield?

Insurance firm Lancashire Holdings (LSE: LRE) is a long-time favourite of mine. This specialist business provides insurance for large valuable assets such as oil rigs, ships and airliners.

The firm’s shares offer a tempting forecast dividend yield of 6.6% for 2019, but despite a solid trading update today, I’m not sure that now is the time to rush into this stock.

That might seem a strange view, given the insurer’s attractive dividend yield. However, the firm’s payout is largely dependent on a special dividend the firm pays each year based on how much surplus capital it has.

Various factors influence this payout, including the cost of major claims and how many new business opportunities the company has. At this early stage in the year, it’s hard to say whether current forecasts will prove accurate. However, last year’s dividend payout of $0.35 per share was significantly below forecasts in October for $0.44 per share.

Although analysts have pencilled in a payout of $0.59 per share for 2019, there’s no guarantee this will be possible.

Chief executive Alex Maloney says that the firm is seeing early evidence of a return to stronger pricing. But premiums written by it only rose by 0.6% to $217.2m during the first quarter, suggesting any improvement in pricing power is limited.

Lancashire stock now trades at nearly 14 times 2019 forecast earnings and at 1.6 times its book value. In my view that’s probably high enough. I rate Lancashire as a long-term income stock. But I’d wait for the shares to dip before buying. I’d hold.

For Foolish investors with a long-term view, this can be a fantastic buying opportunity. In this piece I’m going to take a look at three stocks which I think could deliver FTSE-beating returns in 2019 and beyond.

The picture looks good to me

Investors were in a rush to sell FTSE 100 broadcaster ITV (LSE: ITV) before Christmas. The shares have fallen by around 15% since late November, taking them to a five-year low.

I don’t think ITV’s performance in 2018 justifies such harsh treatment. During the first nine months of 2018, the group reported increased revenue from advertising (+2%), online (+43%) and the ITV studios production business (+10%).

One concern is that adjusted earnings are expected to fall by 4.5% to 15.3p per share. This will be the second year in which earnings have fallen, and analysts expect to see a further drop in 2019.

However, the company’s debt levels remain comfortable, in my view, and cash generation is strong. This year’s forecast dividend of 8.1p per share should be covered 1.9 times by earnings, which looks safe to me.

With the shares trading on just 9 times 2019 forecast earnings and offering a 6.5% yield, I think ITV is too cheap to ignore, despite the uncertain outlook.

An income gem?

You may not be familiar with FTSE 250 dividend stock Lancashire Holdings (LSE: LRE). This London-based firm is a specialist insurer, providing cover against natural disasters for assets such as commercial buildings, shipping and oil rigs.

The group has an impressive track record of returning surplus cash to shareholders through special dividends. The yield available on the shares has topped 10% on a number of occasions, and always been paid.

Unfortunately, 2017 saw the firm hit with a costly run of major claims, following a series of hurricanes, earthquakes and wildfires in the Caribbean, Mexico and the United States. The group reported a loss for the year and didn’t pay a special dividend.

Conditions have improved in 2018. The group is expected to pay a total dividend of $0.36 per share, giving the stock a yield of 4.8%. This yield is expected to rise to 7.7% in 2019. In my view, buying shares in Lancashire could be a good way to diversify a traditional income portfolio. I rate the stock as a long-term buy.

A super sin stock

If you’re open to investing in so-called sin stocks, then I believe online gaming operator 888 Holdings (LSE: 888) could be worth a closer look.

The firm’s shares jumped 10% in one day before Christmas, when the company confirmed profit forecasts for 2018. These suggest that the group’s adjusted earnings will be broadly unchanged at $0.20 per share this year, a forecast that’s repeated for 2019.

Flat profits can be a concern. But I don’t expect this situation to stay the same forever. Management believes the recent deregulation of the US sports betting industry will provide “significant growth opportunities” for 888, which has a lot of experience in providing such services online.

888 shares trade on 12 times forecast earnings and offer a well-supported dividend yield of 6%. In my view, this could be a good time to start buying.

From its IPO to 2017, the insurance group had distributed more than 100% of its earned profits to investors, giving an average annual dividend of more than 7%.

Unfortunately, a series of devastating natural catastrophes last year hit the insurer’s bottom line and, as a result, for the first time since going public, Lancashire didn’t issue a full-year special payout.

Unique dividend model

Because of the nature of the insurance business, Lancashire has adopted a unique dividend model. The company distributes a small dividend once every quarter and once a year, and (towards the end of the year) it declares a large distribution paying out any excess profits.

Last year, the group skipped the payout as insurance losses wiped out profits for the whole year, leaving little for investors. This year, however, analysts expected the company to reinstate its special annual payout. Current projections estimate a total dividend of $0.44 for 2018, rising to $0.59 for 2019. Based on these numbers, the stock could yield 5.8% and 7.7% for 2018 and 2019, respectively.

I believe these figures might be a tad optimistic, especially for 2018, as today the company revealed that catastrophe losses in the third quarter will now wipe out all of the firm’s profit for the period. While management still expects a positive result for the full-year, a Q3 loss could mean a lower distribution than the City expects for 2018.

Still, despite the short-term drop in profitability, I’m positive on the long-term outlook for this business. I think now could be a great time to buy the stock.

Indeed, right now, shares in the Lloyd’s of London insurer are trading at a forward P/E of just 11. What’s more, insurers tend to overestimate losses when they are first announced, so I’m optimistic that Lancashire’s initial losses for the third quarter will not turn out to be as bad as expected. With this being the case, I’m looking to add to my position in the next few days.

Cash backup

If Lancashire is not your cup of tea, another income play that currently looks cheap to me is Jupiter Fund Management (LSE: JUP). 

There’s a lot to like about this City institution. For a start, the stock currently supports a dividend yield of 7.1%, and trades at a forward P/E of just 11.9. Earnings growth has allowed management to increase the firm’s payout at an average annual rate of 14.2% for the past six years.

And I’m struggling to see why the market has awarded the company such a low valuation. Earnings per share (EPS) are expected to contract by approximately 3.3% for 2018 to 32.7p, which is disappointing. But a recovery, albeit a small one, is scheduled for 2019 when EPS growth is projected to be in the region of 0.6%. Not much, but better than a decline.

The one red flag that I can see here is that Jupiter’s dividend is only covered 1.2 times by EPS, below what I’d usually consider comfortable for a dividend. Typically, I’d want to see a cover of 1.5 times, or more. However, I’m willing to overlook this weakness as Jupiter has £313m of cash on its balance sheet, enough to sustain the distribution for two years in the worst case scenario.

The Saga share price has regained some ground since last December’s profit warning. But longer-term shareholders will still be painfully aware that the stock is worth about 35% less than it was one year ago.

Today I’m going to look at the firm’s latest figures and give my verdict on whether the shares deserve a buy rating. I’ll also look at a rather different insurer with attractive long-term income potential.

Good progress in difficult conditions

Saga’s underlying pre-tax profit fell by 3.7% to £106.8m during the six months to 31 July. The company said that new customer acquisition costs were higher in a competitive market, but noted that customer retention had improved in its insurance business.

Reassuringly, operating cash flow remained unchanged at £89.5m. Net debt was £429.7m at the end of July, down slightly from £432m at the end of January. Debt is now equivalent to 1.77x adjusted cash earnings. This looks manageable to me. I think that a dividend cut is unlikely unless new problems arise.

More customers

Customer numbers for insurance have now returned to levels last seen during the first half of 2017, thanks to a 19% increase in motor and home insurance policies. Another bonus is that 44% of customers now pay for more than one insurance product. According to the firm, this is an “industry leading level of multiple product holdings”.

This growth is probably being helped by the increasing membership of the group’s Possibilities loyalty scheme, which has risen from “over half a million” in April to 850,000 today.

What seems to be more difficult is translating higher customer numbers into profit growth. In today’s results, chief executive Lance Batchelor says the group is benefiting from lower operating expenses but faces a “competitive pricing landscape”.

The company’s profits have now been fairly flat for several years. This isn’t ideal but I think the forecast P/E of 9.5 reflects this risk, especially as the 7.1% dividend yield appears to be sustainable.

I’d be happy to buy Saga at current levels.

A high-yield alternative

By pinning its dividend at a high level, Saga runs the risk of disappointing investors if it has to cut the payout. An alternative approach used by some insurers is to pay a more modest dividend and to supplement this with special dividends when spare cash is available.

That’s the method used by Lancashire Holdings (LSE: LRE), which has earned a reputation for dividend yields as high as 10% in recent years. This specialist insurer covers large, valuable assets such as merchant ships and major buildings.

Markets have been tough in recent years, due to increased competition. However, last year’s hurricane season in North America is now providing some support for higher premium rates. Chief executive Alex Maloney says that pricing peaked in January but the group has enjoyed “rate increases across most of our lines of business”.

Broker forecasts suggest a 2018 dividend yield of 5.1%, rising to 7.2% in 2019. My Foolish colleague Rupert Hargreaves believes a higher payout might be possible.

In either case, I rate this specialist firm as a good long-term income buy that should diversify most portfolios. This is a stock I’d be happy to buy and hold, averaging down into any market crashes.

From premium to discount

HICL ended the year with investments in 116 infrastructure projects, up from 114 at the previous year-end. Investments in public private partnership (PPP) projects — for example, schools and hospitals — represented 74% of the portfolio by value. Demand-based assets (e.g. toll roads) accounted for 18% and regulated assets (e.g. water) for 8%. Geographical diversification was of the order of: UK (80%), Eurozone (10%), North America (7%) and Australia (3%).

The shares are trading at 144p, a tad lower on the day, and considerably lower than their all-time high of 184p, achieved less than two years ago. Over that period, NAV per share has increased from 142.2p to 149.6p and the annual dividend from 7.43p to 7.85p. As such, the shares have moved from a 29% premium to NAV to a 4% discount and the dividend yield has increased from 4% to 5.5%.

Too pessimistic

I believe market sentiment has become overly pessimistic about the PPP sector, notably as a result of the collapse of Carillion. As far as HICL is concerned, despite Carillion being the group’s largest facilities management counterparty (10 projects and 14% of the portfolio by value), the hit as at 31 March was a reduction in NAV representing just 2%. This shows the value of HICL’s diversification and the company and its co-investors appear to be well advanced in transitioning the 10 projects to new long-term facilities management subcontractors.

HICL notes that in the current environment, the outlook for private investment in new UK infrastructure projects is muted. However, longer term, I believe the value of private capital in UK infrastructure investment will prevail. And with HICL continuing to see opportunities in Europe and North America, I rate the stock a ‘buy’ at its current depressed price.

Strong recovery in prospect

Insurer Lancashire(LSE: LRE) is another FTSE 250 firm that I hold in high regard but that has also been out of favour with investors recently. It’s current share price of 614p compares with a 52-week high of 760p. The company has a history of paying out almost all of its profits in dividends to shareholders and despite the recent weakness of the shares, it’s delivered a 10-year total shareholder return of over 15% per annum.

Lancashire was hit by heavy catastrophe losses from hurricanes and wildfires last year. However, good insurers take such occasional but inevitable setbacks in their stride. Lancashire has done so, and first-quarter results released earlier this month show the company is taking full advantage of a more favourable underwriting environment.

City analysts are forecasting earnings per share this year of $0.63 (47.4p at current exchange rates) and a dividend of $0.45 (33.8p). At the current share price, the price-to-earnings ratio of 13 and dividend yield of 5.5% represent great value in my book. As with HICL, Lancashire is a FTSE 250 stock I’d happily buy today alongside some select FTSE 100 dividend champions.