The Investment Column: A revived M&S is worth adding to the shopping basket

Domestic & General; Domino's Pizza
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The Independent Online

Our view: Buy

Share price: 687p (unch)

Marks & Spencer is a totally different beast from the basket case the chief executive Stuart Rose first got his hands on two-and-a-half years ago. Back then, numerous expensive and failed relaunches of its clothing ranges, and neglect of its once-premium food business, had combined to push customer footfall and group sales into a tailspin.

By the time Mr Rose came on board, the retail tycoon Sir Philip Green was putting the finishing touches to an opportunistic £4-a- share bid for the company.

Two years after seeing off Sir Philip, investors must be fairly happy that Mr Rose kept his resolve. The group's financial services business has been sold off, the clothing division has been reshaped for the better, costs have been stripped out across the group, and the quality of M&S's food products has been restored.

At its latest set of interim results, earlier this month, pre-tax profits were up 31 per cent to £405m, driven by strong like-for-like sales growth across the board - in spite of the increasingly difficult trading conditions on Britain's high streets. This puts the group within a whisker of annual profits of £1bn for the first time since its late 1990s' heyday.

The retailer celebrated the news by unveiling its first major expansion project since the late 1990s, pledging to increase its store space across the UK by 20 per cent over the next five years. It is also considering whether to revisit western Europe, where it previously failed to make a mark.

Yesterday, it announced plans to plough £35m into expansion and refurbishment in Northern Ireland, a move which will increase its workforce in the region by more than 10 per cent.

This is the start of a new stage for the group. While its expansion creates considerable opportunity for investors, many retailers have stumbled over lesser plans.

When we last looked at this stock more than two years ago, its shares were languishing at around 350p. By the close yesterday, they were near twice that. Investors who have been along for the ride should take this chance to lock in some profits ahead of what may be a bumpy time ahead.

Nevertheless, M&S looks in good shape. If its £4bn property portfolio is excluded, its valuation is not demanding either. If you don't own M&S stock, there is still time to get some. Buy.

Domestic & General

Our view: Buy

Share price: 1035p (+12.5p)

The little-known insurer Domestic & General makes 90 per cent of its revenues selling extended warranties on electrical goods to UK consumers. If you take out an additional guarantee on your latest fridge or dishwasher, the chances are D&G will be behind it.

Although there's an element of cyclicality to the business - with growth slowing when consumer spending contracts - Britain's appetite for new electrical goods ensures D&G's potential customer base is always on the up. With these products getting ever more complex, the demand for extended warranties is also being driven up.

D&G also has the advantage of operating in a relatively unpopulated market place. Although there remains a risk that the Office of Fair Trading may attempt to open up the market to greater competition, it is only a few years since the regulator's last review.

Yesterday's interim results were characteristically impressive, with profits up 5.6 per cent on the back of a 12 per cent increase in sales. Trading at around 15.5 times this year's forecast earnings, the stock does not look overpriced. Furthermore, it offers an attractive dividend of more than 3 per cent, and its imminent promotion into the FTSE 250 should boost the shares. Buy.

Domino's Pizza

Our view: Buy

Share price: 552p (+10.75p)

Domino's Pizza continues to deliver in the expanding fast-food sector and has an attractive commitment to return any surplus cash to shareholders. The UK's largest home delivery pizza chain's latest offering is £10m via a buyback of 1.8 million shares at 555p each.

Current trading remains strong following a positive set of results reported in July, and the company is on track to deliver market expectations for the full year.

In addition, the boom in internet sales can only benefit the group. Domino's says the average phone order is £12, while on the internet this rises to £15 as customers take more time to think about what they want.

Last week, Ofcom set out new regulations for the advertising of foods that are high in fat, salt and sugar to children, banning the use of celebrities and popular cartoon characters.

Fortunately, the group's long-running campaign featuring The Simpsons is no longer a significant part of the marketing budget and though its sponsorship of the cartoon on Sky1 will cease, its licensing deal will continue with characters depicted on pizza boxes and company livery.

With the fast-food sector expanding rapidly, Domino's strong performance is set to continue. It's time to take a slice.

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