I’m looking for shares that are ready to rebound. Here are two recovering stocks I’d consider right now.
Specialist engineering services
Over the past three years, the trading environment has been difficult for James Fisher and Sons (LSE: FSJ). And the multi-year financial record shows earnings have been declining.
The company provides specialist engineering services to the marine, oil, gas and other global industries. Its operations are divided into the Marine Contracting, Specialist Technical, Offshore Oil and Tankships divisions.
The share price has declined since its 2019 heights just above 2,000p. But today’s level near 328p means it’s risen by around 3% over the past year. Indeed, 2022 saw the stock essentially flatline.
However, the directors have been working to turn the business around. And the half-year report on 7 September offered some evidence they may be succeeding.
Operational progress in the second half of 2022 will likely be “materially stronger” than in the first half. There are “strong” order books in Offshore Oil and Marine Contracting. And there’s an “encouraging” pipeline of opportunities in the Specialist Technical division. Meanwhile, Tankships is “trading well”.
The directors expect full-year underlying operating profit to be “broadly in line” with 2021’s. And that suggests the declines in earnings might have been stopped. On top of that, net debt looks set to fall as well.
The company expects the geopolitical and economic climate to remain uncertain. But the directors are “confident” they’re taking the right steps to stabilise the business and “create a platform for sustained recovery”.
Meanwhile, the forward-looking earnings multiple for 2023 looks undemanding at just above seven. However, there’s a fair weight of debt on the balance sheet. And that may become problematic if the business gets into trouble with earnings again.
Nevertheless, the stock tempts me now, although for the time being I have no spare cash to invest.
Pharmaceuticals
A year ago, the Hikma Pharmaceuticals (LSE: HIK) share price was above 2,400p. But today, it stands near 1,552p.
The company develops, manufactures, markets and sells a broad range of generic, branded and in-licensed pharmaceutical products. And the sector is known for supporting businesses with consistent cash flow and steady shareholder dividends.
A glance at Hikma’s multi-year trading and financial record shows that the business has lived up to expectations regarding those two indicators. And that’s even though earnings dipped a bit in 2020 when the pandemic struck.
On 3 November, the company released an upbeat trading statement. Executive chairman and CEO Said Darwazah said the company is seeing “strong” momentum in its Branded and Injectables businesses. And that reflects the benefits of growing breadth and differentiation in the product portfolio.
However, the US generics market is competitive. But Darwazah nevertheless expects Hikma’s Generics business to grow in 2023. And City analysts have pencilled in an uplift in overall earnings of just over 13% for that year.
Of course, analysts can be wrong in their assumptions because all businesses run into operational challenges from time to time. But the forward-looking valuation looks reasonable with the earnings multiple just above nine for 2023. Although that rating looks bigger if we adjust for the firm’s debt pile.
Nevertheless, if I had spare cash I’d embrace the risks and buy some Hikma shares now.
