Retail Stocks Rise From the Dead

Just in time for the holidays, breakouts in the retail sector suggest many companies will survive the age of Amazon.

Advertisements

Bitcoin shows stock markets what a bubble really looks like

If you are searching for evidence of investment bubbles, you don’t have to look very far. Apparently, they are all around us.

Global property is in a bubble. The bond market is in a bubble. The stock market is in a bubble. Crypto-currency Bitcoin is the very definition of a bubble.

They can’t all be bubbles, can they?

Bubble trouble

Whenever an asset class performs strongly, somebody somewhere will inevitably claim it is a bubble.

They have been saying it about stock markets every day of the current eight-year bull market run.

However, I find it almost impossible to get worried about the prospect of a stock market bubble.

Crisis management

First, I am investing for the long term and will hold my money in the market even if we get a major correction, and wait for the inevitable recovery.

That is exactly what I did during the financial crisis — I sat tight and didn’t sell a single stock or fund.

Instead, I continued to reinvest all my dividends at the new lower price, and benefited when share prices began to recover. I also avoided running up unnecessary dealing charges.

So let the share price bubble burst, and if it does, act quick to pick up your favourite companies at reduced prices.

Bit of trouble

Bitcoin is the bubble that really interests me, because it is quite self-evidently a bubble, one that puts all other current bubbles in the shade.

First, it has relatively few practical uses. It may come in useful if, say, you want to shift money out of Venezuela or Zimbabwe in a hurry, but high transaction costs make it an expensive way of doing your everyday spending.

Nor does it work as a store of value, like gold, because it is subject to such massive volatility.

Despite that, “buy bitcoin” is now a more popular search phrase than “buy gold” on Google.

Fear and greed

People worry about the inflated valuations of top internet stocks such as Amazon, Apple, Facebook, Google and Netflix, but these companies offer a practical service people are willing to pay for.

In contrast, most people buying Bitcoin today are pure speculators, greedily seeking a quick buck or fearfully buying to avoid missing out.

Excessive optimism has driven the price far beyond its intrinsic value, the very definition of a bubble.

Coining it in

Just because Bitcoin is a bubble does not mean it is going to burst any time soon. As a proud holder of two Bitcoins – I’m rich! – I hope it does not.

Bubbles have a habit of running for much longer than people expect, then blowing up all of a sudden.

One day Bitcoin may establish itself as a reliable alternative to fiat currencies, or it may cease to exist. Nobody knows.

Either way, stock markets will power on. They may be subject to short-term bouts of volatility, but in the longer run, there is nothing crypto or virtual about investing in real world companies.

Stocks and shares may be a little overvalued but if we are talking bubbles, they have nothing on Bitcoin.

The stock market bull run of the last eight years has made fortunes for private investors all over the world.

Stocks and shares can make you seriously rich, and this FREE Motley Fool report 10 Steps To Making A Million In The Market shows how.

You don’t have to be a share picking genius, the stock market is a global wealth-generating machine that can turn ordinary people into millionaires.

This no-obligation report shows you how to do it, step-by-step. To find out more, click here now.

More reading

Centrica plc isn’t the only value trap I’d avoid right now

Centrica, Gas ring burning

Centrica (LSE: CNA) was in the headlines on Monday after news emerged that it was taking the axe to its much-criticised standard variable tariff (SVT). It will stop offering the deal to new customers from next April, it was announced.

Mark Hodges, chief executive of Centrica Consumer, said that the move “[is] vital to encourage customers to shop around for the best deal and make informed choices about energy” and comes in response to rising pressure on suppliers to cut their charges. Last month prime minister Theresa May vowed to finally introduce price caps to put an end to “rip off” power bills, with one eye clearly on those placed on SVTs.

Out of gas?

The rising pressure on household budgets that government is seeking to address is reflected by the steady stream of customers that are flowing from the ‘Big Six’ suppliers like Centrica and into the arms of cheaper, independent providers.

Latest data from trade association Energy UK showed 600,000 customers switching energy account in October, an 11% year-on-year rise.

And worryingly for the likes of British Gas, almost a third of swappers last month moved to a smaller supplier. Clearly Centrica may have to continue with further rounds of profit-sapping tariff reductions to stop its customers base steadily evaporating. The number of accounts on its books fell a further 4% between January and June from the same 2016 period, to 25,450.

These troubles are expected to push earnings at the FTSE 100 business 6% lower in 2017, a result that would mark the fourth consecutive annual drop, although a 2% rebound is predicted for 2018.

And I reckon the possibility of Centrica extending this record of bottom-line reverses is extremely strong given the pressures at British Gas and the uncertain outlook for the oil market. So even though Centrica deals on a low forward P/E ratio of 10 times, and carries a pretty-impressive dividend yield of 7.4%, I for one won’t be investing any time soon.

Plenty of headaches

Mitie Group (LSE: MTO) was also in the headlines in start-of-week trade following the release of half-year numbers. And like Centrica, I reckon share pickers should give the business a wide berth right now.

Mitie announced that, even though revenues increased 4% between April and September, to £959.7m, the cost of heavy restructuring had caused operating profit to tank 38.1% year-on-year to £14.8m.

The order book remained stable for the first fiscal half, at £5.9bn. But I am not convinced that the business will continue defying gravity given the intensifying headwinds battering the British economy. Meanwhile, rising debt adds an extra problem as this rose to £172.6m in the first half from £147.2m a year earlier.

What’s more, Mitie also announced today that is being investigated once again by the Financial Reporting Council (FRC), this time “in relation to the preparation and approval” of financial statements for fiscal 2016.

City analysts are expecting Mitie to flip into the black in the year to March 2018, with earnings of 15.8p per share expected, rebounding from the 14.7p loss of last year. And earnings are expected to rise again, to 19.7p next year.

I reckon the chances of these fluffy forecasts being cut to ribbons in the months ahead are high, however, and a forward P/E ratio of 14.3 times is not low enough for me at least to willingly hand over my investment cash.

Hot dividend shares to help you retire early

Indeed, I believe there are scores of better shares out there than either Mitie Group or Centrica, starting with the shares revealed in The Motley Fool’s free and exclusive 5 Dividend Winners To Retire On wealth report.

Our analysts have been hard at work identifying a selection of the best FTSE 100 dividend stocks in the retail, pharma and utilities sectors, companies we are convinced should really kick-start your investment income.

Click here to download the report. It’s 100% free and comes with no further obligation.

More reading

Royston Wild has no position in any of the shares mentioned. 
The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Hurricane Energy plc isn’t the only small-cap with huge potential

rocket

In a trading update today, chief executive Richard Tyson said he’s “excited about the prospects” for TT Electronics (LSE: TTG). I have to say I am too, as I see huge potential for investors in this global provider of engineered electronics for performance critical applications.

Evolve and prosper

The company completed the sale of the largest of its four divisions last month. Following the disposal, as management rightly says, “TT will be a higher margin, higher quality business, more balanced across markets and geographies and with increased financial capacity to accelerate growth through capital investments and acquisitions.”

In today’s update, it reported “strong growth” in the continuing businesses, with like-for-like revenue up 6% and the order book across all three divisions continuing to be “strongly ahead” of the prior year. Despite the loss of the disposed division’s revenue and profit, I calculate little change in group earnings, assuming an elimination of finance costs (the company has moved to a net cash position) and lower tax (due to the change in geographical mix).

TT’s share price is little moved following today’s update and at 216p this FTSE SmallCap firm is valued at £350m. With net cash of over £50m, I put its cash-adjusted forward earnings multiple at around 15 and see the stock as very buyable at the current level.

Exciting oil play

Another stock I see as having huge potential is AIM-listed Hurricane Energy (LSE: HUR), which has a market cap of £524m at a current share price of 26.75p. This oil play has 37m barrels of 2P reserves at its Lancaster field and 760-786m barrels of 2C contingent resources across all its fields/prospects — and there’s potential for these numbers to increase by a large amount.

Impressively, for an AIM oiler with no currently producing assets, Hurricane has retained 100% ownership of its licences. This has meant rounds of dilution for shareholders, the latest being a $520m fundraising in June, which included $300m ordinary shares at 32p and the remainder in convertible bonds.

However, retaining full ownership of its licences will reap bigger rewards in the longer term and, for new investors, I believe now could be a great time to buy a slice of the business. The reason is because the fundraising means Hurricane is funded for an Early Production System at its Lancaster field, for which its was given consent in September. First oil is targeted for H1 2019 and planned production is 17,000 barrels a day. This would provide revenue to fund the move to full production. So, if all goes to plan, new investors today shouldn’t experience the level of dilution seen in the past.

Some commentators are deeply sceptical about this. But with Hurricane having the potential to become a major player in the West of Shetland region and also now looking to move from London’s junior AIM market to a premium listing, the risk/reward proposition here leads me to rate the stock a ‘buy’.

Could you make a million from the stock market?

Finding big winners on the stock market isn’t easy. But you may be surprised to know that the Motley Fool’s experts have figured out that a seven-figure-sum stock portfolio is within the reach of many ordinary investors in this straightforward step-by-step guide.

If you’re looking to improve your stock market returns, I urge you to read 10 Steps To Making A Million In The Market. It’s FREE and there are no strings attached, so CLICK HERE for your copy of the report.

More reading

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Why I’d buy this hot growth stock over IQE plc

I reckon the underlying growth story at NEX Group (LSE: NXG) is a good one, and recent weakness in the share price is giving us a good opportunity to research the stock as a potential ‘buy’.

The firm provides trading platforms, expertise and other services for global banks, asset managers, companies and others, and today’s interim results suggest ongoing growth potential. Revenue from continuing operations lifted 7% on a constant currency basis compared to a year ago and operating profiting profit excluding one-off items held steady with a minor 1% decrease. However, underlying earnings per share came in 13% lower and the directors declared a much-reduced interim dividend of 3.5p per share, which compares to last year’s payment of 11.5p.

A progressive dividend policy

Looking forward from this lower dividend level, NEX has plans to deliver a progressive dividend policy, which it says will be set between 40% and 50% of post-tax trading profit. Growth opportunities and cost savings look set to keep earnings rising from here with the directors announcing that they’ve identified the potential for £40m in annual cost savings over the next three years. City analysts following the firm expect earnings to come in 11% higher for the full year to March 2018 and 34% up to March 2019.

Chief executive Michael Spencer reckons the firm has seen a transitional and transformational year.” He expects NEX to achieve compound annual revenue growth of 7% to 10% and operating margins of more than 40% for its NEX Optimisation and NEX Markets divisions by the 2019/20 full trading year.

A question of valuations

Meanwhile, today’s share price of around 586p throws up a forward price-to-earnings (P/E) ratio a little under 17 for the year to March 2019 and the forward dividend yield runs just over 2.8%. Those anticipated forward earnings should cover the payment more than twice.

I reckon the valuation looks reasonable and the firm could make a more comfortable hold than IQE (LSE: IQE), for example.

IQE’s successful placing of new shares raised £95m on 10 November at a price of 140p per share. I reckon that’s quite an achievement for a company that was trading at just 30p per share a year before that and it underlines the potential for growth that investors see in the firm’s business of manufacturing advanced wafer services for the semiconductor industry.

Ramping up capital investment

The directors want the extra money to ramp up capital expenditure aimed at scaling the business to capture “multiple high growth mass-market opportunities.”  The story has captured the imagination of many, and if we do end up seeing IQE’s products in mass-market smartphones and the like, we could witness profits multiplying many times down the road.

However, with the share price standing around 173p, the forward P/E rating for 2018 runs at 41, which seems high considering that City analysts predict growth in earnings of just 27% that year. It’s true that earnings could explode if mass-market adoption of IQE products happens, leaving the analysts scurrying to catch up. But equally, delays or disappointments could materialise to knock the share price down again. I think you need nerves of steel to hold IQE today, so I’d be more inclined to consider Nex Group as a potential investment.

This could be an even better buy

I’m wary of IQE at the current valuation and keen on NEX Group, but the Motley Fool analysts have focused in on another firm set to deliver for investors.

This UK business with a well-known brand could rise much further if things go as well as expected with the firm’s expansion plans. If you’d like full details of this potential ‘buy’, download A Top Growth Share From The Motley Fool today. This exclusive report is free and without obligation. To get your copy, just click here.

More reading

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

 
 
 

One growth stock I’d buy over IWG plc

FTSE 100 rising prices

IWG (LSE: IWG), formerly known as Regus, made financial news headlines back in mid-October when it released a profit warning. The FTSE 250 firm, which specialises in flexible workspace solutions, announced that an expected sales improvement in the third quarter had failed to materialise, and that “weakness in London” and disruption as a result of natural disasters in overseas markets had hit its performance. The group stated that operating profit for 2017 was likely to be “materially below market expectations and in a range of £160m to £170m.”

30% fall

The market has been punishing profit warnings quite harshly recently, and IWG didn’t escape lightly. Its shares fell over 30% in the blink of an eye as a result of the warning. Since then, they have continued to trend lower and can now be bought for below 200p. At that price, do the shares offer good value, or is the stock one to steer clear of?

Analysts now expect it to generate earnings of 12.9p for 2017. A dividend payment of 5.4p per share is anticipated. At the current share price, the stock trades on a forward P/E ratio of 15.4 with a prospective dividend yield of 2.7. In my view, those metrics look relatively appealing for a company that has almost doubled its top line over the last five years, and increased its dividend 10 years in a row. The company has stated that it remains “very positive” about the opportunity for the workspace as a service (WaaS) market and its leading position within it.

Having said that, the thing about profit warnings, is that they’re not always a one-off. While the idea that they always ‘come in threes’ may be a bit of a myth, studies from Stockopedia and Ernst & Young have shown that there’s a 30%-40% chance of a company reporting a further profit warning after the first. With that in mind, I’d be reluctant to invest right now, until we see evidence that IWG has its momentum back.

Surging ahead

One FTSE 250 company that does appear to have significant momentum at present is Diploma (LSE: DPLM). It’s shares have surged 11% today on the back of its full-year results released this morning.

Diploma specialises in providing technical products and services for a variety of applications, including consumables and instrumentation to the healthcare sector, and seals, gaskets and cylinders for heavy mobile machinery and industrial equipment. The company has been a strong performer over the last five years, with revenues rising 66%, and today’s full-year FY2017 results demonstrate further momentum, beating analysts’ expectations.

Indeed, for the year ended 30 September, revenue rose 18% to £452m (vs £443m expected), and profit before tax surged 24%. Adjusted earnings per share increased 10% to 49.8p (vs 48.3p expected) and the company lifted its dividend by a healthy 15% to 23p per share. Chief Executive Bruce Thompson commented: “With a proven business model, broad geographic spread of businesses, robust balance sheet and consistently strong free cash flow, the Board is confident that further progress will be made in the next financial year.

While the stock trades on a punchy P/E ratio of 23.8 after today’s rise, given its strong momentum, and the fact it has broken out to new highs, I wouldn’t rule out further gains going forward.

Have you picked up this new early retirement report? 

The Motley Fool recently published an exclusive early retirement report called The Foolish Guide to Financial Independence

If retiring early is a goal of yours, I’d highly recommend reading the report.

It’s FREE, comes with no obligation and can be downloaded within seconds simply by clicking here.  

More reading

Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes
us better investors.

Should you be tempted by UK Oil & Gas Investments plc’s 160% rise in 2017?

Oil well of the nodding donkey variety

The last few months have generally been positive for the oil and gas industry. Investor sentiment seems to have improved significantly as the price of oil has risen to its highest level in over two years. This has prompted higher share prices for a range of oil and gas companies.

However, few have been able to match the performance of UK Oil & Gas Investments (LSE: UKOG) during the course of the year. Following positive news flow regarding its assets in southern England, the company’s shares have soared so that they are now up 160% since the start of the year. Could more growth be ahead? Or is it too late to buy the company for the long term?

Uncertain outlook

Of course, the outlook for any oil and gas exploration and development company is difficult to assess. Its future share price prospects are largely linked to the news it releases regarding its operations. Positive drilling results are likely to lead to an improved share price performance. Conversely, negative operational performance may mean investors lose interest in its prospects.

Therefore, over the medium term the share price performance of UKOG may prove to be highly volatile. What may work in its favour, however, is the prospects for the oil price. They appear to be generally positive, given that OPEC and non-OPEC countries seem keen on the idea of providing further support to the oil price in the form of supply restrictions. This could help to keep any supply surplus in check during the next year, which may allow the price to continue with its upward trajectory.

Clearly, a higher oil price may not create the conditions necessary for UKOG to make 160% gains in 2018. And recent difficulties have caused some investors to reconsider their views on the company’s outlook. However, with the business focused on what appear to be relatively low-cost operations and it having significant potential based on estimates, it could prove to be a sound, albeit risky, buy for the long run.

Growth potential

Of course, there are other oil and gas exploration companies which may be worth a closer look. Reporting on Monday was Central Asian oil and gas company Caspian Sunrise (LSE: CASP). It reported that contractors are on-site at its Deep Well A5 at its BNG Contract Area in Kazakhstan, and are expected to commence the 90-day flow test before the end of November. Furthermore, Shallow Well 146 has reached its revised total depth of 3km. Based on information analysed to date, Well 146 may resemble Well 143. It is producing at a rate of 600 barrels of oil per day (bopd).

Looking ahead, Caspian Sunrise may also benefit from a rising oil price. Investor sentiment has picked up markedly in the last month, with the company’s share price rising by around 25% during the period. As with UKOG, the company is highly dependent upon future news, but seems to offer high reward potential for the long term.

Making a million

Of course, finding stocks that are worth adding to your portfolio is a tough task, which is why the analysts at The Motley Fool have written a free and without obligation guide called 10 Steps To Making A Million In The Market.

It’s a simple and straightforward guide that could make a real difference to your portfolio returns. It could help you to find the best risk/reward opportunities on offer right now.

Click here to get your copy of the guide – it’s completely free and comes without any obligation.

More reading

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Is Xaar plc a falling knife to catch after 15% share price fall?

Investing in the FTSE 100

Buying any stock that has fallen significantly in one day can be a risky move for an investor. In most cases, the decline in valuation is due to a profit warning or some other negative news which impacts on the future profitability of the business in some way. As such, it can be difficult to judge what the company in question is worth, as well as how its risk/reward ratio may have changed.

That’s the situation with digital inkjet technology developer Xaar (LSE: XAR). The company’s share price declined by over 15% on Monday after it released a profit warning. Could now be an opportunity to buy it for the long run? Or, is it a stock which is best avoided at the present time?

Difficult period

The company is facing a more difficult second half of the year than it had anticipated. It had expected its sales to be weighted towards H2, with growth in revenues from new products due to increase. However, it now anticipates sales to be similar to the level in the first half of the year. This is due to fewer than planned new printer installs of Xaar’s 2001 Printhead, as well as a slower ramp up of the Xaar 1201 Printhead due to supply constraints.

In ceramics, the company’s printhead replacement business is now expected to represent around 70% of revenue in 2017. There has been strong demand for the new 1003 Printhead, but due to intense competition for new printer installs, there has been more limited success with the 2001 product.

Due to supply constraints, it has not been able to fulfil all of the demand for the 1201 Printhead. It expects to rectify this with new capacity which is due to come on stream in 2018. Following this, it expects to see significant growth from 2018 onwards.

Positive outlook?

Despite a difficult period for the business, it has been able to reduce its dependence on the legacy ceramics business. This could be good news for the company’s future since the ceramics business faces reduced visibility as competitive pressure increases. Furthermore, the company continues to invest in sales and marketing as it seeks to deliver on its transformation plans.

However, its near-term outlook appears to be difficult to judge. It seems to be facing multiple challenges at the same time as it is trying to change its business model. This could prove difficult at a time when many of its products are facing increasing levels of competition. This could mean further disappointment over the coming months.

Therefore, with the stock trading on a price-to-earnings (P/E) ratio of 17.4 using last year’s earnings figure, even after its 15% share price fall, its risk/reward ratio does not yet appear to be favourable. It may be prudent for investors to avoid the stock at the present time.

A top growth stock?

With the above in mind, there’s another stock that could be a sound investment. In fact it’s been named as A Top Growth Share From The Motley Fool.

The company in question could make a real impact on your bottom line in 2017 and beyond. And in time, it could help you retire early, pay off your mortgage, or simply enjoy greater financial freedom in future.

Click here to find out all about it – doing so is completely free and comes without any obligation.

More reading

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.