Should I Buy These 5 Shares?

LONDON -- I've been popping stocks into my shopping basket in recent weeks, and it's about time I took one or two to the checkout. Here are five stocks I've found tempting, so should I buy any of them?

Going Continental
InterContinental Hotels Group
(LSE: IHG  ) has enjoyed a barnstorming five years, growing 160%. And it just keeps rising, up 15% in the past three months alone. This U.K.-listed global hotel chain group is a play on the recovery, particularly in the U.S., where it earns 45% of its revenues. When business starts building again and travelers get traveling, IHG's room occupancy rates will rise (and they're pretty full already). Every year, 153 million people spend a night at one of its nine brands, which include Holiday Inn, Crowne Plaza, and InterContinental. Yet the group doesn't own the physical hotels, having sold most of them and signed long-term management contracts to lease them back from the new owners. This leaves InterContinental light on assets and heavy on profit. Full-year 2012 results showed revenue rising 4% to 1.83 billion pounds and operating profit up 10% to 614 million pounds. The dividend was hiked 16%. It now yields 3.3%, covered a meaty 2.2 times. InterContinental's exposure to the U.S. and China has helped it survive the slowdown in Europe, but trading at 21 times earnings, it does looks expensive. With forecast earnings-per-share growth of 11% this year and 9% next year, there is plenty of upside, but you will pay a price for it. This is more of a hold than a buy.

Losing my Compass
Contract caterer Compass Group (LSE: CPG  ) is another barnstormer, also up 160% over five years, and up 14% over three months. The company, which provides food and support services to businesses, schools, hospitals, universities, and sports facilities, employs 500,000 people across 50 countries and serves 4 million meals a year. As if that weren't enough, it has diversified into reception and office services, desk cleaning, and routine maintenance. Given all the offices in all the world, that gives it an almost unlimited target market. Compass trades at 8.30 pounds. Bank of America has just lifted its target price to 9.25 pounds and nailed it as a buy. Forecast EPS growth looks positive at 8% in the year to September 2013 and 11% over the 12 months after that. As with InterContinental, recent successes make it expensive: Compass trades at nearly 20 times earnings. The dividend is relatively disappointing, yielding just 2.6%. This could be a great buy in the next correction.

Pick up a Pearson?
Pearson
(LSE: PSON  ) hasn't done so well lately, with management warning of tough trading conditions. Pearson, which owns the Financial Times, publisher Penguin, and a thriving educational division, currently trades at 11.76 pounds, down 3% over the past year. Yet its profit held up in 2012, with full-year sales rising 5% and adjusted operating profit up 1% to 936 million pounds. International education revenue rose 13%, including a 25% rise in emerging markets, as yet another FTSE 100 favorite finds the going less sticky in the emerging world. Pearson is one publisher that really gets digital. The FT's digital readership is growing strongly, with subscriptions up 18% to almost 316,000, while ebooks now account for 17% of Penguin's sales. EPS growth looks shaky this year with a forecast drop of 5%, rebounding to 13% growth in 2014. You can buy it at 13.2 times earnings and pocket a 3.8% dividend that's covered 1.9 times and was recently hiked a progressive 7%. Brokers have been downgrading Pearson since its recent results, with many now underweight. If Pearson's massive restructuring plan does bear fruit, patient long-term investors could reap the rewards. Now might be a nice entry point.

Apple's sweet spot
Last year, everybody wanted a piece of Apple (NASDAQ: AAPL  ) . Its share price soared to $700 as its portfolio of iProducts conquered the world like nothing before and profit seemed destined to rise 45% a year forever and ever. But that level of innovation is tricky to maintain, and what do you do when almost everybody owns an iPhone? One response was to check out Samsung's product range. So is Apple rotten to the core? Hardly. It now trades around $450, down 35% from its peak. That makes now a better time to buy than six months ago. Canaccord Genuity is keen, reiterating its buy rating with a target price of $600, reduced from $650. Sterne Agee also hails this stock a buy while slicing its target price from $715 to $630. The Apple backlash was inevitable. I don't expect the glory days of growth to return, with Steve Jobs gone and the tablet market looking increasingly crowded. But its sales and market share are still massive. Its customers are loyal (I'm writing this on a MacBook after years in Dell hell, and I'm not going back). Markets have had their fun and successfully lowered expectations. If the cash keeps coming in, or if Apple's miserly yield suddenly becomes masterly, as some anticipate, now could prove a sweet spot.

Bunzl in the oven
Everybody knows Apple. Bunzl (LSE: BNZL  ) is a bit more obscure, but it has its fanboys as well. When I reviewed this specialist distribution group in mid-February, one ardent supporter posted this message: "Superb company. Exceptional track record, wonderfully diverse, in an attractive industry." It is hard to disagree. Bunzl supplies businesses around the world with a range of not-for-retail goods, such as food packaging, catering equipment, stationery, bags, cleaning supplies, face masks, and swabs -- humdrum stuff that companies plough through every day of the working week. There is nothing humdrum about Bunzl's share price performance: It's up 27% in the past three months alone. That's hardly surprising, given a better-than-expected 5.8% rise in pre-tax profit to 324 million pounds in 2012. Bunzl has been on the acquisition trail, which can be risky, but its 13 new purchases have added 500 million pounds' worth of annual revenue. Management was happy to hike the dividend by 7%, although, yielding 2.2% and covered 2.9 times, the payout leaves something to be desired for loyal investors. This is yet another stock that now looks toppy at 18 times earnings. Bunzl clearly has plenty of fans out there. For that, you get steady forecast EPS growth of 7% this year and 6% next. But maybe we could all do with a little market correction right now.

Eight more
So that's five stocks to consider. Here are another eight from the U.K.'s master investor. Fund manager Neil Woodford has turned 10,000 pounds into 193,000 pounds since his fund's launch in 1988. You can find out where he is investing now by reading in our special in-depth report "Eight Top Blue Chips Held by Britain's Super Investor." This updated report is completely free and shows where Invesco Perpetual's dividend dazzler believes the best high-yield stocks are to be found. It won't cost you a penny, so download it now.


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