Welcome back to the UK FTSE350 share tip column, where we look to continue in providing high quality share ideas for readers. As you will be aware, fortunes have recently shifted across global markets, brought on by aggressive trade policies and general uncertainty surrounding the Trump administration in the U.S.
As a regional market, Europe has been outperforming, with strong returns led by Germany and Italy, however in the UK, indexes have yet to experience any major uplift that would signal a sector rotation and broad inflow into UK equities.
In fairness, the UK economy still needs to make some progress to bring some cheer to investors. Inflation remains a little higher than desired at 3% (2% target), GDP growth forecasts have recently been revised downwards to 1.4% (1.7% previously) and the Bank of England decided to hold rates at 4.5%. When we look to rates in mainland Europe of 2.75%, UK rates seem fairly restrictive to economic prosperity.
Despite this backdrop, there are signals that things could improve throughout the year. In commentary on the 20th March, the Bank of England Governor alluded to the fact that rates will likely be coming down gradually throughout the year. Barring any significant uptick in inflation, the UK market could be set up for a strong catalyst in May, when the next decision is made on interest rates – to which a cut could provide an uplift to rate sensitive equities.
This stock set to benefit from rate cuts
Given the fairly high likelihood of being at the top of the interest rate cycle, the tip this month is aimed at benefitting from ongoing rate cuts, whilst not solely reliant on them for the business to prosper and returns to be positive for the portfolio.
The business I will outline in today’s tip is a leader in an industry with underlying growth prospects, unmet demand in the UK and Europe and structural barriers to entry providing a unique moat to protect the business. The business I will outline would be considered as a ‘compounder’ – a company that continues to invest cash in expanding operations, in pursuit of consistently increasing shareholder returns. With the current poor sentiment towards the UK economy, this business is trading at a significant discount to its tangible assets and I would expect a sizable return to ensue when market forces return to the norm.
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