Why I’d always buy stocks over Bitcoin

This year has been a positive year for share prices across the globe. Various indices such as the S&P 500 have delivered record gains, which has led to a large number of investors feeling content about their past investment decisions.

However, few shares have been able to compete with the gains generated by Bitcoin this year. The virtual currency started 2017 at $1k and proceeded to rise to five-digit levels in the following months. Despite this, shares continue to offer a superior risk/reward ratio than the cryptocurrency. In the long run, they seem to be a better investment.

Risk/reward

Although shares are intangible in the sense that they are in an electronic form, they still represent a slice of a real business. This entitles the holder of the stock to a share in the future success of the company. Unless the company has only just been formed, it comes with a track record. This shows how it could perform in future, and can be used to judge the price which the company is worth. Furthermore, a balance sheet provides guidance on how risky the business may prove to be. This helps an investor to determine the risk/reward of a particular stock.

Bitcoin, on the other hand, is difficult to judge from a risk/reward perspective. It does not appear to have a future as a viable alternative to traditional forms of currency or payment methods, so its rise appears to be built purely on speculation. Certainly, the rewards have proven to be stunning this year, but the risks appear to be prohibitively high.

Income potential

While Bitcoin has surged higher this year, its track record shows that it has the capacity to perform exceptionally poorly at times. Therefore, while paper profits are attractive, they are not booked until the asset is sold. The same goes for shares, except that they generally offer an income return in addition to capital growth potential.

Research shows that the reinvestment of dividends can make up a large proportion of total returns in the long run. Therefore, shares can benefit from the impact of compounding, while the lack of income with Bitcoin makes this task more difficult, since capital growth is the only source of potential profit.

Regulations

The stock market has evolved over a long time period. In its lifetime, it has been the subject of various scandals which have led to regulations which generally work for the benefit of investors. The protections available to buyers of shares, however, do not yet seem to be in place in the Bitcoin arena. This could lead to losses for holders of Bitcoin, while the introduction of sudden and unexpected regulations may cause the price of the cryptocurrency to decline.

A lack of regulations and the potential for their introduction increases the risk associated with Bitcoin. As such, shares appear to be the more attractive asset to hold in the long run.

Making the right decisions

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Should I pile into Earthport plc, down 30% today?

FTSE 100 falling prices

Falling 30% on Monday following a disappointing update was payment network for cross-border transactions specialist Earthport (LSE: EPO). Clearly, investor sentiment is weak at the present time. But could this be an opportunity to buy it for the long run?

Difficult period

The company’s anticipated revenues for the current year are expected to sit between 10% and 15% below current market expectations. This is partly due to delays in some expected contracts and client implementations, as well as a recent change at one of its leading e-commerce clients.

Although many of these contracts are due to complete within the current financial year, they will result in lower revenues. Recent changes at an existing e-commerce client have meant the loss of around 5% of projected revenue, as the client has changed its plans for a UK corridor for domestic payments for reasons specific to it.

Growth potential

Despite this, the company remains upbeat about its outlook. It continues to invest in sales capacity and its pipeline is expected to have a positive impact on revenues by the end of the current financial year. It is seeing continued expansion of international corridors by large existing clients, while its weighted and unweighted new business pipeline for the next financial year is already over twice that of the current year, with further growth expected.

Therefore, it seems as though a turnaround is possible over the medium term. However, in the short run it would be unsurprising for Earthport’s share price to move lower as investors digest its disappointing update. As such, it may be worth avoiding at the present time.

High returns

Also operating within the financial services sector is Prudential (LSE: PRU). The life insurance and diversified financial services provider appears to have a bright long-term future. It is expected to grow its bottom line by 6% in the current year, followed by further growth of 9% next year. This puts it on a price-to-earnings growth (PEG) ratio of just 1.4, which suggests that it offers a wide margin of safety.

With Prudential having a dividend yield of 2.6%, many income investors may have dismissed it as a potential buy. However, the company is expected to increase its shareholder payouts by around 8% in the next financial year, which is well ahead of inflation. Furthermore, with dividends being covered 2.9 times by profit, there seems to be scope for them to rise at a much faster pace than profit in future years. This could make the company a strong income play – especially at a time when inflation is already at 3.1% and is forecast to move higher.

As such, Prudential appears to offer a potent mix of income and capital growth prospects. With a diverse business model and a sound track record of delivering on its potential, now could be the perfect time to buy it for the long run.

The best stocks for 2018?

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Peter Stephens owns shares in Prudential. 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 I pile into Plus500 Ltd, down 15% today?

falling

The market doesn’t much care for this morning’s update from Contracts for Difference (CFD) provider Plus500 (LSE: PLUS) and the stock is down around 16% as I write.

The Contracts for Difference industry faces escalating regulation and the company tells us of a statement from the European Securities and Markets Authority (ESMA) on 15 December regarding the regulator’s preparatory work relating to CFDs and other products offered to retail clients. ESMA plans to conclude its consultation during January and will announce official trading restrictions then.

Largely on the right side of things

No wonder investors are spooked. The industry regulator has the power to completely pull the rug from under Plus500’s business model, and if that happened the consequences for shareholders could be dramatic (in a bad way). However, the directors aren’t worried, saying the firm “welcomes this statement and the strong regulatory framework that this will bring to the industry.”

It goes on to say that on the main points highlighted in ESMA’s statement, Plus500 has “never offered binary options and has always provided balance protectionto its customers across all its product offerings in all its markets.” The company reckons it has a maintenance margin level that delivers its customers additional protection and that, from January 2017, bonus schemes “for the vast majority” of operations were removed. 

Chief executive Asaf Elimelech sounds relaxed about the news saying: “It is positive to have an update from ESMA, as this provides us with more transparency as to the regulatory changes that may be implemented in January 2018.”

From here, the firm expects to wait for the conclusion of the consultation in order to understand where it needs to implement adjustments to its business model. But Mr Elimelech sounds a note of caution, admitting that it’s difficult to assess the impact on the business until the details of changes have been finalised. Yet he reckons the backdrop is that Plus500 has a flexible business model, already provides many of the protections suggested by ESMA, and is well diversified globally, “now with seven licenses in different jurisdictions following the recent licence approval in Singapore earlier this month.”

Opportunity in uncertainty?

Overall, I sense that the directors are pretty confident that regulatory changes will not cause too much disruption to trading, so could today’s weakness in the share price be a good opportunity to buy into the story? Even at today’s reduced share price of around 804p, the stock is up 130% or so since the beginning of 2017, reflecting the underlying growth story. Earnings look set to come in close to 46% higher this year and City analysts following the firm have a flat result pencilled in for next year. Meanwhile, the valuation looks attractive with the forward price-to-earnings ratio running a little over seven for 2018 and the forward dividend yield sitting just higher than eight.

I’d be the first to admit that dividend yields that high can signal a warning, but in this case the stock has been marked down for a clearly identifiable uncertainty and there could be opportunity in that situation. I think Plus500 is worth keeping a close eye on.

But if the regulatory uncertainty makes you uncomfortable you may prefer to look at an opportunity highlighted by the Motley Fool analysts who have focused in on a FTSE 250 firm set to deliver for investors.

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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.

Is Babcock International Group plc a FTSE 100 growth share that could make you a million?

Questions

Buying stocks which have delivered a disappointing share price performance can be a highly profitable move for long-term investors. In many cases, there is a wide margin of safety on offer, while the upside potential may be higher than the downside risks.

With engineering support company Babcock (LSE: BAB) having fallen by 27% in the last year, it is clear that investor sentiment is weak. However, with a low valuation and positive earnings growth forecasts, could it be a FTSE 100 stock that helps to make you a million?

Positive news

The company released news of a contract win on Monday. It has been awarded a 10-year contract to supply Sellafield with specialist handling and containment systems to process nuclear material. The contract will be delivered by Babcock’s subsidiary, Cavendish Nuclear, and could be worth up to £95m over the first three years of its life. With the subsidiary having experience in working with Sellafield and the resources to deliver the project, it could have a positive impact on the company’s financial and share price performance.

As mentioned, Babcock has fallen significantly over the last year. Its shares now trade on a price-to-earnings (P/E) ratio of 8.6, which given the firm’s size and scale appears to be exceptionally low. It suggests that investors have priced-in a very challenging and disappointing future for the business.

Looking ahead though, the company is expected to record a rise in its bottom line of 3% in the current year, followed by further growth of 4% next year. Certainly, these figures are below those of the wider index, but they suggest that the firm is performing relatively well at an uncertain time for the wider industry. As such, now could be a good time to buy the stock for the long term.

Growth potential

Also offering an impressive growth rate is wealth manager Hargreaves Lansdown (LSE: HL). It is expected to post a rise in its bottom line of 11% in the current year, which comes after a period of relatively solid performance. For example, in the last five years the company has been able to deliver a rising bottom line 80% of the time, with its annualised earnings growth rate being over 13%.

The problem for investors though, is that the company’s valuation appears to adequately factor-in its growth outlook. Hargreaves Lansdown may have a dominant position within its industry, but it trades on a P/E ratio of 34.2. This suggests that it is overpriced and that if its growth rate disappoints versus forecasts, it could lead to severe falls in its share price.

Certainly, the company has a sound strategy as well as the potential for increasing profitability as the current Bull Run continues. But with the likes of FTSE 100-peer Babcock trading on lower valuations, there could be more attractive investment opportunities in other parts of the index.

Millionaire potential

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Peter Stephens owns shares in Babcock. The Motley Fool UK has recommended Hargreaves Lansdown. 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.

2 high-growth dividend shares with millionaire-maker potential

IAG British Airways plane

Dividend stocks could be a shrewd investment over the medium term. Despite inflation rising to 3.1% last month, there are a number of stocks which offer significantly higher dividend yields that  look set to remain above inflation. As well as this, some shares could post impressive rates of dividend growth in future years. This combination of a high yield and growing dividends at a time of higher inflation could act as a catalyst on their share prices.

With that in mind, here are two which appear to offer a mix of rising dividend and appealing yields.

Impressive performance

Reporting on Monday was specialist accident management, legal services, fleet management and niche insurance product provider Redde (LSE: REDD). The company’s trading since its full-year results announcement on 7 September and AGM statement on 25 October has been positive. Sales have continued to show an increase over the corresponding period of the previous year. This reflects growth in trading volumes, with trading profits being ahead of the prior year period.

As well as impressive operational performance, Redde’s investment case is centred on its dividend. The stock currently has a dividend yield of 6.8%, which is above and beyond the current rate of inflation. It also has a solid track record of dividend growth. For example, in the last three years, shareholder payouts have increased at an annualised rate of around 12.2%.

While Redde’s dividends are barely covered by profit at the present time, the company seems to have a solid business model. It is due to post growth in earnings of 2% in the current year and with its strategy seemingly sound, it could continue to offer inflation-beating dividend growth over the long run.

Dividend growth

Also offering an upbeat outlook for income investors is British Airways-owner IAG (LSE: IAG). Its performance in the last few years has been exceptionally strong, with the company being able to restart dividends after a period of difficulties. In fact, dividends per share have increased by a third over the last two years. Yet they are still covered 3.7 times by profit, which suggests that they could increase at a significantly faster rate than profit and remain highly sustainable.

Looking ahead, IAG is expected to post a rise in its bottom line of 5% in the current year, followed by further growth of 7% next year. This puts it on a price-to-earnings growth (PEG) ratio of just 1, which suggests that as well as a fast-growing dividend, the stock could have upside potential.

Certainly, the airline industry is highly cyclical. But with a wide margin of safety and encouraging growth potential, now could be a good time to buy the diversified airline stock. As well as this, it has a dividend yield of 3.7% at the present time. This is ahead of inflation and could become more appealing if the price level continues to rise.

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.

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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.

Directors at Saga plc keep buying — should you join them?

stock market chart

Directors at Saga (LSE: SAGA), the over-50s travel and insurance group, signalled their confidence in its long-term prospects with recent share purchases.

In spite of last week’s profit warning which sent shares in the company plunging more than 20%, Chief Executive Lance Batchelor was among the buyers, with purchases of more than 72,000 shares for a total consideration of nearly £100,000 since 6 December.

CFO Jonathan Hill was another significant buyer after purchasing 17,400 shares at 132.6p on 11 December, for a total transaction amount of more than £23,000.

Sign of confidence

Directors sometimes buy after a significant drop in the share price of their company, demonstrating that they believe the stock has been oversold. And when they do so, this is usually seen as a sign of confidence in the company’s prospects.

Some investors take this as a buying signal, especially if the director in question is in a position of knowledge and exercises significant day-to-day management over the company. This seems to be the case, with the CEO and CFO of course being among the very top positions within the company’s management structure.

Historical evidence shows that whenever directors acquire significant quantities of shares in the companies they manage, the stock often outperforms the market in the months to come. This would suggest that an investment strategy which follows the pattern of director dealings has the potential to produce market-beating returns.

More pain ahead?

Nonetheless, I’m cautious about buying the shares myself as I believe there could be more pain ahead for shareholders. With the ongoing shift from insurance underwriting to insurance broking and increasing customer acquisition costs, Saga’s profits could have a lot further to fall before eventually making a recovery.

And although valuations are undemanding, with the shares trading at 9.5 times expected earnings this year, the operating environment remains a challenge. This means a re-rating in its shares beyond 11 times forward earnings over the next 12 months appears unlikely to me.

Selling activity

Meanwhile, there was also noticeable selling activity with housebuilder Berkeley Group (LSE: BKG) recently.

Karen Ellis, wife of executive director Sean Ellis, sold 65,000 shares, worth nearly £2.7m, on 11 December. Sean Ellis is currently the Chairman of St James Group and the Berkeley Homes Eastern Counties Division, and has been a Divisional Executive Director since 9 September 2010.

This follows on from other major share disposals earlier this year, which included sales from Chief Executive Robert Perrins’ wife and veteran chairman and co-founder Tony Pidgley, who sold 500,000 and 750,000 shares, respectively, in September.

The market doesn’t take too kindly to major players wanting to sell, but ultimately it’s the fundamentals that determine the stock in long term. At odds with the signal from recent share dealings, management recently lifted its five year pre-tax profit guidance from 2016 to 2021 to £3.3bn, up from £3bn previously.

However, when we look further ahead, there are also reasons to be less sanguine. Berkeley is seeing a significant reduction in reservation rates, especially in the capital, reflecting weaker demand amid Brexit uncertainty. Although this has so far not had a discernible impact on average selling prices for the group, Berkeley cannot be immune to market conditions forever.

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Jack Tang 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.

A FTSE 100 stock I would sell without delay

Jolly Roger pirate flag

The twin threats of trading difficulties in its core regions of Britain and France would encourage me to sell out of Kingfisher (LSE: KGF) without delay.

The DIY specialist has seen its share price leap 10% since the release of third-quarter numbers less than a month ago. But I can’t help but fear that share pickers are a bit premature in hoping that a turnaround at the long-troubled business is just around the corner.

Kingfisher announced in November that while like-for-like revenues (constant currencies) in the UK and Ireland rose 1.5% in the three months to October, sales at B&Q dropped 1.9% in the period as disruption created by its ‘ONE Kingfisher’ transformation plan continued.

But the weak performance in its home markets pales into comparison with what’s going on in France right now as its Castorama and Brico Dépôt outlets underperform the broader market. Sales in these divisions shrank 3.2% and 5.2% respectively during Q3, forcing like-for-like sales at stable rates across the Channel 4.1% lower year-on-year.

Still struggling

Now the one bright spark from Kingfisher’s latest statement was that sales growth at its Screwfix stores in the UK continued to impress. Revenues  are booming thanks to strong digital sales, good product ranges and new store rollouts, and total sales here jumped 16.6% in the last quarter.

All things considered however, I reckon the FTSE 100 stock is far too risky right now given the troubles thrown up by its transformation strategy and the possibility of prolonged pain, not to mention a backcloth of deteriorating retail indicators in the UK as domestic growth grinds to a crawl.

City analysts are predicting a 2% earnings slip in the 12 months to January 2018, and while a 12% rebound is predicted in the following year, I would not be surprised to see these hopes begin to recede in the coming months. I think investors should consider selling before this happens.

Kingfisher’s forward P/E ratio of 13.8 times may be low, but this is not low enough to prevent heavy share price falls in my opinion.

A tasty growth share

Those seeking a retail play with far superior growth prospects to Kingfisher my want to give Just Eat (LSE: JE) a close look.

The FTSE 250 star, which will join the Footsie elite index in 2018, continues to go from strength to strength and it hiked its sales guidance in late October after announcing a 47% rise in the July-September quarter. And I expect revenues to keep rising as acquisitions like that of HungryHouse bed in.

City analysts are expecting profits at the takeaway titan to spring 36% higher in 2017, and to follow this up with a 41% advance next year.

And I consider Just Eat to be a bargain in light of these bright forecasts. A prospective P/E ratio of 46.4 times may be expensive on paper, but a corresponding PEG readout of 1.3 indicates that the business is actually exceptionally priced relative to its growth prospects.

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Royston Wild has no position in any of the shares mentioned. 
The Motley Fool UK has recommended Just Eat. 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.

Looking for reliable high yields? Consider these dividend investment trusts

Dividends

If you’re looking for high yields from reliable income-generating investments, then you may be interested in these two investment trusts.

Renewable energy

First up is The Renewables Infrastructure Group (LSE: TRIG), which invests in renewable energy assets in the UK and Northern Europe, including wind farms and large-scale solar power projects.

Investors are on the hunt for alternative sources of reliable income as the stock market is trading near record highs and yields on bonds remain pitifully low. With physically-backed assets and the guaranteed nature of government subsidies for renewable energy generation, investing in renewable energy projects should deliver stable, long-term returns.

Another benefit of investing in renewables is diversification. As returns from investing in such assets have historically had little correlation with traditional investments, such as stocks and bonds, the inclusion of renewable investments could give investors greater downside protection in a market sell-off.

There’s some inflation protection too, as revenues benefit from inflation linkage via Feed-in tariff and CfD subsidies, which are pegged to RPI inflation, and exposure to energy prices.

6% yield

The Renewables Infrastructure Group has been an impressive cash cow for income investors since its IPO in 2013. Those who have invested from the beginning have earned a total return — that is both the capital growth and dividend income, of 8% annualised.

At a current share price of 106.2p, the fund offers investors a current dividend yield of 6% from a quarterly dividend payout of 1.6p per share. And in line with peer renewable energy investment trusts, shares in the fund trade at a slight premium to its net asset value (NAV) of 6%.

Infrastructure

Another safe high-yielding investment trust worth a closer look is GCP Infrastructure Investments (LSE: GCP).

Infrastructure has been one of the most popular defensive asset classes in recent years, attracting billions in fund flows from sovereign wealth funds, pension companies and other institutions. With stable cash flows underpinning infrastructure assets, funds with holdings in infrastructure investments tend to earn steady and predictable income.

GCP Infrastructure Investments is somewhat different to other infrastructure investment trusts, in that it doesn’t invest in equity interests of infrastructure projects, but instead in the debt issued by infrastructure projects.

Less risky

As a buyer of debt, particularly Private Finance Initiative debt, as opposed to equity investments, the investment trust is expected to be less risky than its peers. There’s substantially less operational risk involved, since equity holders, being the residual claimants of a company’s assets, usually take the first hit from any impact on profits.

Moreover, the fund has some hedge against inflation too as a big proportion of its assets is inflation-linked.

On the downside, valuations are a bit more expensive relative to sector peers, with shares trading at a 14% premium to its NAV. But in spite of its bigger valuation premium, the shares still offer investors a similar yield of 6%.

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Jack Tang 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.