With the global economy in turmoil, UK shares that were pandemic darlings are down significantly in 2022. But a lot of these companies are robust businesses operating in exciting sectors. Here, I’m looking at two such pandemic performers that seem to me to be primed for growth for the next market recovery. I’m searching for ‘future-proof’ UK shares available at a discount and these two companies look like good picks for my portfolio.  

The future of grocery 

Ocado (LSE:OCDO) was a big pandemic winner. With people restricted indoors, this online grocer’s sales blew up. And while Ocado is still an online grocer, it has slowly transitioned into a tech company that sets up automated warehouses for other big chains. And its designs and workflow systems are backed by over 500 patents. 

The economic slowdown has caused many UK shares to fall from pandemic and post-pandemic highs. And Ocado shares, which rose 160% between February 2020 and February 2021, have fallen 69% since. In 2022 alone, the Ocado share price is down 45%. And there are some solid reasons behind this drop.

Ocado’s operations are very cash-intensive right now. The company has reinvested earnings and borrowed over £4bn since its initial listing. And just this week, it placed a further £575m of shares on the market, which added up to 9.7% of its share capital. Its huge R&D spending means the company has recorded pre-tax losses for two consecutive years.

But I’m still very bullish on this fast-growing UK share. It’s clear to me that automated warehousing is the future of e-commerce. And Ocado’s recent partnerships with grocery giants like Morrisons and Kroger back this up. The board expects steady revenue when warehouses that are still under construction start functioning. And its automation products saw a 301% jump in contracts last year. 

I believe its tech will become immensely valuable in the next five years. Ocado tops my UK shares to buy watchlist but the market is still volatile and I think the current bear run could present a better buying opportunity in the near future.

FTSE 100 darling

Equipment rental company Ashtead Group (LSE:AHT) was a big winner in 2020-21. Its shares jumped over 310% between March 2020 and December 2021. However, so far in 2022 they’re down 45% at 3,400p with a price-to-earnings ratio of 14.8 times. And I think the company is a bargain growth option at this price. 

It’s already the second-largest equipment rental company in North America and the largest in the UK. And being a construction service provider, Ashtead avoids the pitfalls of construction like fluctuating commodity prices and environmental factors delaying deliveries.

The company will have to deal with growing overhead and repair costs and its sizeable £5.8bn net debt. This could eat into future revenue given its high acquisition spending right now. But the business is a strong cash generator, bringing in £1.1bn in 2022. 

This business is on my UK shares buy list because of its steady growth strategy and huge market share in cash-rich regions. Ashtead addresses a very specific problem in the construction industry and I’m bullish on its business model. I’d be tempted to invest in the company once the larger global economic climate shows strong signs of recovery. 

The post Down 45%, are these UK shares no-brainer bargains right now?  appeared first on The Twelfth Magpie.

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Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has recommended Ocado Group. 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.

Recent results

The full-year figures for calendar year 2021 were just released by Rolls-Royce. As a present shareholder, I was glad to see the company turn in a £513m profit instead of a £1.97bn loss as in 2020. This indicates a significantly enhanced operational environment. Indeed, cash outflow for the period plummeted from £4.18bn to only £1.44bn. This is an indication that Rolls-Royce’s stock is levelling out.

In addition, in 2021 the company sold several enterprises, including AirTanker Holdings and ITP Aero, resulting in estimated revenues of roughly £2bn. This might help the corporation pay down its £7.88bn debt load.

Why are Rolls-Royce shares so cheap?

We can better grasp if a company is undervalued or overpriced by looking at its price-to-earnings (P/E) ratio. Based on expected profits, Rolls-Royce has a forward price-to-earnings ratio of 22.27. When compared to two key competitors, Safran and General Electric, which register 29.85 and 27.86, respectively, Rolls-Royce shares could be undervalued. 

Deutsche Bank‘s price estimate of 130p has been confirmed. And Berenberg also set a ‘buy’ rating with a target price of 160p this month. With the shares presently priced at 101p, I believe the Rolls-Royce stock price can continue to rise.

That said, it’s important to note, that subsequent pandemic variants might put a stop to the company’s comeback.

Sustainability at its core

Rolls has suffered a lot during the pandemic as airlines have stayed on the ground. But crucially, the firm’s focus for technological development and investment of late hasn’t been all about airline engines. It’s also been about fossil fuel energy alternatives — notably nuclear. The Qatar Sovereign Wealth Fund invested £85m in the company’s plans for Small Modular Reactors (SMRs) in December 2021. These will generate electricity using nuclear energy and should be connected to the grid by 2030.

And in its core air travel category, in November 2021, the company was also testing electric planes to help transition the aviation industry to cleaner energy sources. These studies were conducted in tandem with engine testing using 100% sustainable aviation fuel. This would be a significant step toward decarbonising the sector.

With recent results, I’m more hopeful that Rolls-Royce stock will recover and I’ll be adding more to my portfolio.

The post Is the Rolls-Royce share price seriously undervalued? appeared first on The Twelfth Magpie.

More reading

• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• Here’s how much I think Rolls-Royce shares will be worth by the end of 2027
• Could small modular reactors take Rolls-Royce shares to the next level?
• Is now the perfect time to buy Rolls-Royce, Babcock and BAE System shares?
• The SpaceX frenzy is over – is it time to look at Rolls-Royce shares again?

James Reynolds 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.

I went back to the first five FTSE 100 investment ideas I shared in my articles. The shares I had picked were Burberry, Unilever, Sage Group, Anglo American, and Smurfit Kappa. 

Portfolio vs FTSE 100 returns

If I had invested an equal amount in each of these FTSE 100 shares on the day the article was published, I’d show a total return of 26% on my portfolio (as of Friday 24 December). By itself, the return on portfolio sounds pretty plump to me. This is particularly so, considering the stock market crash earlier in the year and the continued pandemic. 

But I think the better way of assessing it is by comparing it to the FTSE 100 index’s performance. To do this, I first averaged the index value for each of the days that the stock purchase was (hypothetically) made between October and December 2018. 

I then calculated how much it has changed as per the latest close, which is on 24 December at the time of writing. There are other ways of coming up with a comparable estimate, but this was the most straightforward one, which also gives a good indication of where we are at. 

The results surprised me quite a bit, I have to say. Turns out that the FTSE 100 index has fallen on average by almost 7% in the two years. To put it in other words, the performance of this investment portfolio is 33 percentage points better than the index average. 

There’s more. 

Not all FTSE 100 stocks are made equal

As of the last close, every single FTSE 100 share in the portfolio showed a positive return by comparison. There are vast differences in the extent of gains, but at the very least the shares are headed in the right direction. 

The biggest gainer is the FTSE 100 packaging provider Smurfit Kappa, whose share price is up 76% from then. It’s followed by the multi-commodity miner, Anglo American, whose share price is up almost 45%. These two make up most of the gains. 

Others like Unilever, Sage Group, and Burberry have shown single-digit returns by comparison.

What to do next

I’d stay invested in them, however. All three companies have strong credentials. In fact, part of the reason their returns look relatively muted has to do with the timing of the calculations. One month later, for instance, things could look very different.

Now with the Brexit deal out of the way, I reckon there’s greater predictability about the UK’s future. With some more patience, I think these FTSE 100 stocks will also show great returns, like many others among FTSE 100 constituents. 

The post This is how much I would’ve made from my first 5 FTSE 100 stock ideas here appeared first on The Twelfth Magpie.

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Manika Premsingh owns shares of Burberry. The Motley Fool UK has recommended Burberry, Sage Group, and Unilever. 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.

There are plenty of examples of such trends around. I’ve talked about extensively in the past about online shopping, but I believe it bears repeating. This is because of two developments we’ve seen this month. 

Developments that will impact investing in 2021

The first is the Brexit deal that was struck a few days ago. It means that goods can be assured to move from Europe to the UK without complications at ports or price increases that would arise from a no-deal Brexit. It also means that the UK economy can now, finally, look forward to more stability after over four years of uncertainty. Investors are clearly happy, going by the FTSE 100 rally.

Second, the mutated coronavirus has put quite a dampener on more than just our collective holiday spirit this year. Many parts of the UK under increased restrictions and this may well continue for a while. We don’t know. We also don’t know if the vaccine will be effective now. We only know that it’s far more dangerous and we are safer cocooned in our homes than anywhere else. 

What’s going to happen next

Putting these two developments together makes it clear that we will continue to shop online well into 2021. In some respects, we may never go back to bricks-and-mortar stores (there’s just so much more and better choice available online in some cases). As a result, I think we can expect FTSE 100 companies either in this segment or in linked industries to benefit from it. And that’s not just for now, but for a long time to come. 

Here are 10 of them among the FTSE 100 constituents alone:

The FTSE 100 online marketplace boom

This one’s a no-brainer. Stocks like the FTSE 100 online grocer Ocado have shown stellar performance in 2020. In fact, I’m so convinced of it that it’s my top stock for 2021 as well. Niche online marketplaces like Auto Trader and Rightmove are two others I think will continue to thrive over time.

Linkage effects from online shopping

Our online shopping spree has a direct effect on demand for packaging materials. The FTSE 100 index has not one but three such companies among its constituents – Mondi, DS Smith, and Smurfit Kappa – all of which can make gains from the trend. There’s also the real estate investment trust Segro, which focuses on warehouses, and whose share price has performed quite well already this year. 

The FTSE 100 pivoters

Last but certainly not the least is the pivot among big FTSE 100 retailers to the online space. As a Tesco consumer, I can vouch for the ease in online shopping through its app. I’m eagerly watching how this pivot will continue next year. This goes for J Sainsbury too, which is struggling right now. Also on my radar are non-essential retailers like NEXT, which has reported much of its sales from online purchases recently. 

The post 10 FTSE 100 stocks I’d buy in 2021 for BIG gains appeared first on The Twelfth Magpie.

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• The £15bn defence splurge that could send UK shares soaring in July
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Manika Premsingh owns shares of Ocado Group and Rightmove. The Motley Fool UK owns shares of Next. The Motley Fool UK has recommended Auto Trader, DS Smith, Rightmove, and Tesco. 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.

But I’m both a believer and investor in AZN. And every dip in its share price looks like an opportunity for me to buy. At a price of £76.5 per share, AZN is right now at around the same levels that were last seen in early April. The only difference is, at that time the share price was recovering from the stock market crash of late March. But since November, it has been sliding down. 

Why the AstraZeneca share price fell

It would be a cause of worry at any other time, but not now. There are two reasons for this:

#1. Big picture: I see the AZN share price dip as part of a larger trend. Since the Covid-19 vaccine was successfully developed early last month, bulls have taken over the stock market. Stocks that had crashed in the lockdowns have suddenly become coveted. On the other hand, safer stocks like healthcare ones are suddenly out of favour. 

#2. Acquisition of Alexion: The share price dropped even more when AZN announced its acquisition of US-based Alexion at a 45% premium in a cash and stock deal. I wouldn’t read too much into this, however. It’s not unusual for the acquirer’s share price to fall on such news, as I had pointed out in the case of the FTSE 100 online food delivery provider, Just Eat Takeaway, a few months ago. I think it’s worth underlining that JET’s share price reached all-time-highs by October, despite the decline. 

Why it can rise to £100 (or more)

Keeping both these reasons in mind, I think there’s potential for the AZN share price to not just rise to £100, but even beyond. Let me elaborate with two more points to back up my argument. 

#1. Consider the consensus – Often, thought not always, there’s merit in numbers. So if the average share price forecast of 24 analysts covering the AZN stock is £94 in 12 months’ time, as per the Financial Times, then I’m optimistic. That’s an over 23% increase from where it is now. That’s quite close to £100 and more bullish analysts put the target level much higher.

#2. Relatively less expensive – Even though, in terms of absolute levels, AZN is still one of the priciest FTSE 100 stocks, it’s looking increasingly less so in relative terms. At 40 times, its earnings ratio is comparable to that of many other stocks now. Compare this to the chemicals’ manufacturer Johnson Matthey, which has a ratio of 49 times. Or the likes of Prudential and Burberry, whose price-to-earnings (P/E) ratios are in three-digits now. As other stocks start looking increasingly pricey to investors, I reckon rationality will return to stock pricing and they will become bullish on AZN again. 

I think AstraZeneca shares are still worth consideration at their current share price. 

The post Can the AstraZeneca share price touch £100?  appeared first on The Twelfth Magpie.

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Manika Premsingh owns shares of AstraZeneca and Burberry. The Motley Fool UK has recommended Burberry and Prudential. 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.

Several business leaders have spoken out, warning that a large proportion of companies are still not prepared for such an outcome. However, a last-minute deal could always happen.

The uncertainty surrounding both Brexit and Covid-19 has created significant volatility in the value of the pound. And that’s where an opportunity to both protect and grow wealth exists.

An opportunity to profit from a no-deal Brexit?

Outside the realm of stocks, numerous other financial instruments exist. When it comes to currency, specialised contracts called currency and FX swaps are the two most popular.

But these derivatives are complex, and even a seasoned professional can make severe mistakes. Luckily you don’t need to be an expert thanks to the UK stock Alpha FX (LSE:AFX).

Alpha is a currency risk management and payments solutions business. The firm operates in over 30 countries, assisting companies in protecting their revenue streams from currency exchange risks using the previously mentioned derivatives.

Unlike most other businesses, uncertainty is fantastic news for Alpha. Large swings in currency prices create better opportunities to protect as well as grow the income of their clients.

How Alpha’s cost structure beat the banks

Typically, currency hedging services are offered by large banking institutions. However, this can be quite a considerable expense, especially for smaller businesses.

The payment structure designed by Alpha removes that barrier to entry. The firm does not charge any consultancy fees as a bank would. Instead, it charges commission fees on all trades committed on behalf of their clients.

This approach makes the service far less expensive and, therefore, more accessible to small and medium-sized enterprises.

Alpha focuses purely on the trading aspect of risk management. As such, there is no need to spend money generating reports of currency forecasts, timing dossiers, or market commentary for clients. While commissions don’t yield as much as a consultancy fee, this lower cost of operations creates an operating profit margin of 40%!

A hidden second opportunity within the same UK stock

But beyond its risk management services, Alpha also has a division dedicated to processing digital payments for enterprises.

Cashless transactions continue to become more prominent among consumers, thanks to companies like Visa and MasterCard. But when it comes to large international business transactions, the infrastructure is still underdeveloped.

This ultimately causes inefficiencies which Alpha is eliminating with its international payment solution. Just like other payment processors, the stock charges a small fee for each transaction made through its network.

The bottom line

A no-deal Brexit is looking more likely with each passing day, and so I believe Alpha presents a fantastic opportunity to protect my wealth while uncertainty reigns in the UK economy.

In addition, the payments solutions side of the business looks incredibly promising in my eyes. Therefore, I expect the stock to continue performing well, even after stability has returned to the UK market.

The post No-deal Brexit: I’d buy this UK stock to protect my wealth appeared first on The Twelfth Magpie.

More reading

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• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Zaven Boyrazian owns shares in Alpha FX and MasterCard. The Motley Fool UK has recommended Alpha FX. 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.

Today, the online portion of the company still represents around 24% of the revenue stream. The remaining income is brought in from physical stores or partnerships with third-party retailers such as Ocado and Amazon.

The business model is fairly straightforward — it sells chocolates. However, the multi-channel approach to marketing its 400+ flavour catalogue has turned the stock into a debt-free cash cow.

Furthermore, Hotel Chocolat has also expanded in addition to its 127 UK branches to include a café-style lounge. In a similar fashion to Starbucks, it sells various flavours of chocolate-based beverages — including a delicious iced-chocolate shake that I’ve personally tried.

A deliciously innovative capital raising strategy

As previously mentioned, the firm is now free from all debt obligations and has been since 2018. But the original debts themselves weren’t exactly traditional.

Its bonds were famously referred to as “chocolate bonds” because they didn’t pay any interest – at least not in cash. Instead, lenders who bought the £2,000 bonds would receive six boxes of chocolates per year whose value was equivalent to a 6.7% interest rate.

The scheme was actually a huge success. The innovative approach to raising capital demonstrates not only intelligent leadership, but also a product that must be desirable, I feel.

A chocolate-craving customer community

Retaining customers in any business is quite a challenging feat, and the chocolate industry is certainly not short on competition. Therefore, customer loyalty is an essential aspect of the company.

As of July, Hotel Chocolat had over 1.3 million active members in its VIP club that offers a 10%-15% discount on all purchases. It actively engages with its customer community through social media to analyse what flavours are driving the most interest. And behind the scenes, there’s software keeping track of customer spending. This subsequently allows the firm to update customers by mail if a product they like is being revamped or a collection is being expanded.

How much can the FTSE AIM 100 company grow?

The multi-channel approach to doing business exposes the firm to four key markets.

• Chocolate-based gifts with a £195bn estimated global market size.
• Chocolate-based leisure products with a £224bn estimated global market size.
• In-home chocolate-based products with a £3bn estimated global market size.
• Premium chocolate-based alcohol and beauty products with a £102bn estimated global market size.

So far, despite its strong performance, Hotel Chocolat controls less than 0.1% market share in all four.

The bottom line

Chocolate hardly seems the most dazzling investment opportunity within the market when compared to some soaring tech stocks this year. But what it lacks in dazzle, it makes up for in flavour.

The business has a delicious product that is curated with the help of the people buying it. Combining this strong customer relationship with solid financials is a recipe for success, in my eyes. 

I’m currently seeking a new addition for my portfolio, and Hotel Chocolat is definitely looking like a stock I’d buy.

The post 1 FTSE AIM 100 stock I’d buy and hold before 2021 appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Zaven Boyrazian does not own shares in Hotel Chocolat. The Motley Fool UK has recommended Hotel Chocolat. 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.

An opportunity to beat the market?

Kainos Group (LSE:KNOS) is a digital platform and services company. It provides IT consultancy to a wide range of FTSE 100 businesses as well as the UK government.

The firm uses cloud-based technologies to run software services. Since its employees were able to easily  work from home, the performance impact from Covid-19 has been negligible.

Its revenue stream comes from two segments of the business – digital services and digital platforms.

The first focuses on increasing the cost-effectiveness of organisations that primarily operate within the public, commercial, and healthcare sectors (including the NHS). The central government is also working with Kainos across multiple departments – such as the Commonwealth Office, Home Office, Land Registry, Department for Environment, and many others.

The second segment is the cloud platform side of the business. The firm sells a range of software solutions all designed to reduce inefficiencies within the healthcare sector. The technology is behind the digitalisation of NHS patient records and the automation of healthcare delivery.

In 2010 the company began to develop a strong relationship with the American software vendor Workday. Kainos has expanded the base capabilities of the software to allow for direct consulting, project management, remote integration, and post-deployment services for its clients.

The financials

Clients regularly pay for the consultancy services, as well as annual licensing fees for their software solutions. This means that revenue is generated almost entirely from repeat sales to customers.

With companies closing offices to keep their employees safer, the need for the Workday platform has only increased. This presented an incredible opportunity for Kainos to expand it long client list.

The most recent interim results saw top-line revenue grow by 23% to £107.2m. This strong performance originates from double-digit growth across all its sectors. International, Commercial, and Healthcare revenues rose by 54%, 34%, and 73%, respectively.

Seeing this level of growth is quite impressive. However, what I’m excited to see is the operating profit margin almost doubling from 14% to 22%.

By already having a business infrastructure in place, combined with favourable market conditions, the proportion of operational costs remained constant. In other words, Kainos was capable of transforming most of this new revenue directly into profits.

The bottom line — can it beat the FTSE 100?

Seeing the firm double its underlying profit in only six months is quite an achievement. While I think it’s unlikely that this will occur again, the margin increase has made the share price more justified in my eyes.

Assuming the business can maintain its current growth rate over the next six months, I would expect the pre-tax profit to be around £50m. This would be the equivalent of a forecasted price-to-earnings ratio of 35.

It’s certainly not a cheap stock, but with more companies needing to undergo digital transformations, I believe this stock is on track to continue outperforming the FTSE 100 Index.

The post 1 tech stock I’d buy to beat the FTSE 100 appeared first on The Twelfth Magpie.

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Zaven Boyrazian does not own shares in Kainos. The Motley Fool UK has recommended Kainos. 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.

This new approach to developing medicines from living organisms rather than chemical bases has allowed the pharmaceutical industry to make giant leaps. But its uses are not limited to just medicine. Biotechnology companies have developed pest-resistant crops, biofuels for vehicles, and even gene cloning.

This diverse range of applications and continual discoveries have created an enormous opportunity for these two biotech companies, in an industry expected to reach $500bn by 2026.

Oxford Biomedica – A hidden industry leader?

Oxford Biomedica (LSE:OXB) specialises in gene and cell therapy. This segment of the biotechnology sector is relatively new, with only eight FDA-approved treatments on the market today. However, by 2025 it’s expected that 10-20 new therapies will be approved — every year.

Why do I think Oxford Biomedica is a leader? It’s simple. Developing gene and cell therapies is a costly process that most pharmaceutical companies would deem too risky to pursue. However, this stock has developed a proprietary platform called LentiVector.

It allows Oxford Biomedica to utilise its expertise to assist large pharma companies in developing new drugs. The firm charges bioprocessing and development fees for clients using the platform. This approach to drug development is considerably cheaper for clients and subsequently reduces the investment risk.

Attracting the likes of Novartis and Bristol Myers Squibb, the platform has become a centre point for bio-drug development. What’s more, is even after completion and approval of a new treatment, Oxford Biomedica continue to receive royalties from each sale. Needless to say, this business model creates an incredible stream of recurring revenue and cash flow – a key requirement for explosive returns.

Bioventix – An industry diagnostics expert

Bioventix (LSE:BVXP) operates in a different segment of the industry. It designs and manufactures specialised antibodies for blood testing machines. Today blood tests are used to diagnose almost every disease — including Covid-19.

This continual rise in demand has drastically increased the price of antibodies. To put it in perspective, Bioventix currently sells between 10-20 grams each year at around £4m.

Currently, the supply does not meet the demand, and while this won’t be the case forever, it may not matter over the long term.

Just like Oxford Biomedica, Bioventix works directly with large pharma companies to sell or develop new antibody solutions. The firm also continues to receive royalties on each subsequent sale of a product designed with its antibodies. Almost 70% of the revenue stream originates from these multi-year royalty payments.

Growth stocks with a recipe for explosive returns?

With one business diagnosing the problems, and the other finding treatments, they capture a large portion of the industry pipeline. Combined, the companies amount to a $1.12bn market cap, thus there is a lot of room for growth.

I’ve owned shares in Oxford Biomedica for many years, and recently I’ve bought more. Bioventix is a far smaller company, but it’s looking ever-more promising in my eyes. Fused in one portfolio, I believe these biotech growth stocks have the potential to create explosive returns for myself and other shareholders.

The post I’d buy these 2 growth stocks for explosive returns! appeared first on The Twelfth Magpie.

More reading

• Just above £6 today, here’s where this deeply undervalued FTSE biotech star ‘should’ be trading right now
• Down 43% with a 9% dividend yield – should I buy this stock?

Zaven Boyrazian owns shares in Oxford Biomedica. The Motley Fool UK has recommended Bioventix. 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.

There’s good reason to be confident that it can. Last year, group revenue increased a whopping 97% to £579m, due to strong 29% constant currency sales growth from the core Boohoo brand and full acquisition of the US brand PrettyLittleThing.

But with this level of growth now routine in the eyes of investors, there’s a significant amount of future expansion already baked into the group’s valuation of 47 times forward earnings. So this means there’s going to need to be unexpected positive catalysts to see Boohoo’s share price double again in the short term.

One possible avenue for this is an unexpected uptick in sales from management’s current guidance of 35-40% sales growth. This is possible, but would require either overseas growth to jump substantially from the 65%+ growth posted last year or for new brands to prove immensely popular.

Or, if recent big investments in the physical infrastructure that underpins future sales growth come in cheaper, or more efficient than expected, investors would likely react favourably as adjusted EBITDA margins would reverse the dip they took from 12.1% in FY17 to 9.8% in FY18.

Management has already set relatively low expectations for full-year EBITDA margins of 9-10% this year. So even a marginal uptick in profitability, without being seen to sacrifice much-needed investments, would offer upside potential.

Boohoo has certainly gone from strength to strength in recent years and proved the bears such as myself wrong. However, with the online fast fashion sector offering low barriers to entry for competitors, relatively low margins, and the constant potential for young consumers to shift allegiance to another brand, Boohoo is still one richly-valued stock I’m steering clear of.

A more down-to-earth investment 

I’m much more interested in thread supplier Coats (LSE: COA), whose share price has returned 143% over the past five years – not far behind Boohoo’s 172% return over the same timeframe. On one hand, Coats suffers from some of the same problems I have with Boohoo. After all, for clothing makers, thread is just another input where cost is normally the primary concern.

But Coats has turned itself into more than just a low margin, bulk thread supplier in recent years. It now produces a growing percentage of sales from higher value-added threads made from a variety of materials for end uses ranging from fire-proof clothing to telecommunications cables. And now management has set its sights on a potentially transformative market, namely composite threads that use materials like carbon fibre to make stronger, lighter products for use in automotive or industrial settings.

Interim results covering the six months to June suggest the company will stay in investors’ good graces as constant currency sales bumped up 5% to $788m, while adjusted operating margins increased from 12% to 12.7%. With plenty of opportunities to further boost profitability, market share gains are expected to build, and with huge end-markets to tap, I reckon Coats could turn into a very nice long-term holding. And, at under 14 times forward earnings, while kicking off a growing 1.35% dividend yield, I find it attractively-priced to boot. 

The post What would it take for the Boohoo share price to double again? appeared first on The Twelfth Magpie.

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Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK has recommended boohoo group. 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.