Believing that a company’s value might explode this year sounds a bit ambitious given the funk markets are currently in. But as 2021 showed, it’s also achievable if I pick the right FTSE stocks and encounter a healthy dollop of luck.

Today, I’m focusing on one share that I think has the potential to perform better than most in 2022. It might not, of course, but I do think it’s possible.

A FTSE stock that’s ready to fly

Online travel operator On the Beach (LSE: OTB) probably wasn’t the stock some would expect me to talk about in these terms and I understand why. The Manchester-based business has endured a tough couple of years thanks to the pandemic. I won’t include any figures on trading here. Let’s just say they haven’t been great. 

Having said this, there are a few reasons why I think the shares could finally be ready to fly.

First, we appear to be entering the final stages of Covid-19. As confidence returns (and restrictions become a distant memory both at home and abroad), more of us will feel confident enough to start booking holidays. Goodness knows, the demand is there. Yes, that will take some time to filter through to OTB’s numbers, but analysts are already expecting earnings per share growth of 126% in FY23 (beginning this October). Growth that strong could light a fire under the share price.

Second, On the Beach’s asset-light business plan means it can be far more nimble than larger industry rivals. If it needs to prioritise marketing particular destinations to gain the full benefit of the post-pandemic recovery, it can do so quickly. To me, that gives it an advantage over its travel stock peers.

Third, On the Beach’s finances are arguably in a better state than other companies in the sector. In its annual report, it said it “enters the new financial year well-funded to successfully and sustainably grow market share“.

Clearly, the probability of On the Beach soaring in price depends greatly on it releasing better-than-expected updates. However, a sizeable gain is not unrealistic for a business of its size. As I write, OTB shares are worth less than half the value they hit in April 2018. The market cap at Friday’s close was £475m. While the past is no reliable guide to the future, it shows that in a travel-friendly world, the share price can be much higher.

Nothing’s guaranteed

But I’ve already mentioned that luck plays a role. Any stock that’s attractive on paper can perform disastrously events conspire against it. Another Covid-19 variant, industrial action, terrorism in a popular destination — all of these can dent holiday bookings. And that would keep OTB’s share price grounded.

Plus there’s the possibility the general market malaise we’ve seen in January may continue for longer than anyone expects. This will prove a drag on most share prices. This is why spreading my cash between quality growth stocks and funds is an essential part of my investing strategy.

Optimistic holder

Yet I do think there’s a real chance of On the Beach finally rewarding this patient, battle-scarred investor in 2022. Exploding in value in under a year is a challenge, but I think the odds might be turning in this FTSE stock’s favour.

It remains my favourite Covid-19 recovery play. 

The post I think this FTSE stock could explode in 2022 appeared first on The Twelfth Magpie.

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Paul Summers owns shares in On the Beach. The Motley Fool UK has recommended On The Beach. 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.

“Exceptional trading”

Shares in ten-pin bowling and mini-golf operator Hollywood Bowl (LSE: BOWL) breached the 300p barrier back in January 2020. As markets opened this morning, they changed hands for only 239p. Nevertheless, today’s update suggests this gap might soon be closed.

From reopening its doors on 17 May to the end of September, BOWL enjoyed “exceptional trading“. Like-for-like revenue grew by 29% from that achieved in (pre-Covid) FY19. To me, that’s clear evidence management’s delivering, even though trading has likely been helped by restrictions on foreign travel. 

I suspect this form will continue. After all, families will be looking for relatively cheap forms of indoor entertainment as the cold weather arrives. In preparation, BOWL has been busy refurbishing various sites. Looking further ahead, it’s planning to open 14-18 new centres by 2024.

No guarantees

This isn’t to say Hollywood Bowl is a slam-dunk investment from here. We’re already being warned that Covid-19 infection levels, assisted by the arrival of the flu season, could spike again. Even if restrictions aren’t brought back in, visitor numbers and spending could drop. Investors might also speculate that the pent-up demand for affordable activities like bowling has now passed. 

I think the current valuation takes this into account. On less than 17 times forecast earnings prior to today’s statement, BOWL shares weren’t screamingly cheap. Then again, nor were they seriously expensive, especially considering the £30m of net cash on the balance sheet.  

Of course, the time to strike was last year. Had I snapped up the stock 12 months ago (and just prior to the announcement of effective vaccines), I’d be sitting on a gain of around 70% today.

No matter. Based on today’s positive statement, I’d be happy to add the shares to my portfolio.   

On the way back?

Another growth stock I think should continue to recover well is online package holiday operator On the Beach (LSE: OTB). After wobbling like everything else recently, its shares are back in form today. This follows news that the number of countries on the UK Covid travel red list will now be dropped from 54 to seven.  

Having started building a position in this company earlier in 2021, it’s a case of ‘so far, so good’ for my investment. Notwithstanding this, I don’t pretend there won’t be challenges ahead. Like Hollywood Bowl, the company could be impacted by the re-introduction of restrictions should infection levels rise.

Regardless, travel will always be a hugely competitive space and OTB’s apparent lack of economic moat is something I was conscious of when buying over the summer. 

These concerns aside, I continue to be bullish on this UK growth stock. With its asset-light business model and very limited debt, it remains one of the best ways of playing the post-pandemic recovery that I can find. 

With the shares still roughly 40% below the all-time high of 615p set back in 2018, I’m hoping to at least double my money. As always, patience is required. Full-year numbers are due in December.

The post Top growth stocks to buy now for the recovery appeared first on The Twelfth Magpie.

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Paul Summers owns shares in On the Beach. The Motley Fool UK has recommended Hollywood Bowl and On The Beach. 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.

None of this has stopped me from continuing to buy growth stocks for my own portfolio though.

Contrarian growth stock

After sitting on the sidelines for a while, I’ve finally grabbed the bull by the horns and snapped up shares of online holiday firm On the Beach (LSE: OTB).

Devoid of the high fixed costs endured by larger peers such as TUI, OTB’s flexible, online-only business model ensures it has minimal cash burn while travel restrictions remain in place. A recent £26m share placing also gives the company sufficient financial firepower for a big marketing push when rules are relaxed and demand for holidays explodes.

This isn’t to say that taking a position now is without risk. Those restrictions will likely be in place for a while yet. Moreover, the barriers to entry into this market aren’t particularly high.

Nevertheless, the progress of vaccination programmes leads me to think that the risk/reward trade-off is far better than it used to be. OTB’s share price is also down roughly 40% since March. This gives me what I feel to be a decent margin of safety. I’ll be continuing to drip-feed my money into this growth stock over the next few months. 

Buying the dip

I simply couldn’t finish July without adding to my stake in fast-fashion giant Boohoo (LSE: BOO). A bumpy ride over the last month, not helped by a poorly-received update from industry peer ASOS, looks to be another opportunity to acquire this growth stock at a great price.

The 20% fall in Boohoo’s value over the last six months leaves its shares changing hands for less than 26 times earnings. I think that could prove to be a steal once the company puts its ESG (Environmental, Social, Governance) concerns to bed. The negative publicity will hopefully lessen as BOO demonstrates what it’s done to put things right with its supply chain.

Sure, there are other potential headwinds. Confirmation of an online sales tax could send the shares lower, as might a simple lack of news over the next month. However, some knockout interim numbers in September may arrest this fall. Evidence that recent acquisitions are bearing fruit would provide another boost. 

Investing megatrend

My last buy this month has actually been an investment trust rather than a single company stock.

I began buying Biotech Growth Trust (LSE: BIOG) in April. Unfortunately, its shares have drifted lower since then. Reasons could include the ongoing rotation from growth stocks into those appearing to offer more value. There might also be a belief that healthcare-related funds have had their time in the sun.

Notwithstanding this, I’m confident BIOG’s managers — many of whom are medically trained — know what they’re doing. An annualised return of 17% over the last five years is far better than the trust’s benchmark. Then again, this has been at the expense of greater volatility, As such, those with weak stomachs need not apply.

Given the rate of technological progress, this area could be one of the investment themes for years. I think a diversified trust like BIOG is the best way to play it.

The post 3 UK growth stocks I’ve been buying in July appeared first on The Twelfth Magpie.

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Paul Summers owns shares in On The Beach, boohoo group and Biotech Growth Trust. The Motley Fool UK has recommended ASOS, On The Beach, and 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.

Dire numbers

Today’s interim results from On the Beach (LSE: OTB) have been greeted with a shrug of the shoulders from the market. Considering the ongoing uncertainty regarding the pandemic, that’s to be expected. Yesterday’s news that the final stage in Boris Johnson’s roadmap would be delayed was always likely to make investors jittery over what the next few months could bring for any company in this space.

Predictably, OTB’s actual numbers weren’t great either. Despite knowing that international leisure travel would technically receive the green light on 17 May, travellers have been behaving cautiously. This, combined with “a significant number of cancellations” due to the extended lockdown, had a “material impact” on trading. 

All told, revenue in H1 tumbled 79% to £4.4m over the six months to the end of March. An adjusted pre-tax loss of £9.5m was also reported.

None of this should come as a surprise to holders. After all, the number of European destinations prepared/permitted to welcome UK tourists back seems to change on a weekly basis. Factor in the costs of getting pre-flight coronavirus tests and potential disruption caused by local curfews and it’s understandable that people are holding back.

So why is this the best British stock to buy?

But there are a few reasons why I think OTB is the best British stock buy in this sector. First, there’s its financial position. At the end of March, the company had £30m in its coffers (and an undrawn revolving credit facility of £75m). Importantly, this excluded cash received from customers. This is ring-fenced in a separate account — an arrangement likely to be well-received by both investors and holidaymakers. If confidence is to return, transparency is key.

Second, last month’s decision to stop selling holidays set to depart before the beginning of September was another prudent move, especially as the company believed any upside from bookings would be “marginal” and offset by disruption caused by cancellations. Again, by focusing on helping those with existing bookings, OTB is likely to win loyalty from customers. I suspect this will serve it well once restrictions are completely lifted.

Third, there are already signs that 2022 could be a great year for the company (assuming things do return to normal, which isn’t guaranteed). Sure, the number of bookings remains stubbornly low. However, OTB did say they were “significantly ahead of normal trading patterns”, albeit partly caused by the early release of flights by airlines.

Lastly, I remain a big fan of the company’s flexible business model. Its relatively small amount of cash burn and online-only presence allows OTB to remain nimble, even in troubled times. 

Positive outlook

Like many in the travel sector, OTB remains in a sticky patch. But despite deciding against issuing guidance for its full-year, CEO Simon Cooper remains bullish on OTB’s prospects. Today, he said the steps taken to respond to the Covid-19 fallout should help to position it “very strongly for successful and sustained growth.”

Based on my analysis, I can’t argue with that.

The post 1 British stock to buy for the travel recovery appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended On The Beach. 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.

Despite this stellar return in such a short space of time, I’m still not tempted to buy. In my view, there’s a far better pick for my ISA within the travel industry.

Profits tumble

As my Foolish colleague Alan Oscroft remarked on the day they were released, recent results from online travel operator On the Beach (LSE: OTB) were predictably “horrible“.

Adjusted profit at the business tumbled to just £600,000 for the year to the end of September, due to lockdowns across Europe. That’s staggeringly small when you consider On the Beach is valued at getting on to £600m.

As bad as this sounds, I’m optimistic it will be able to recover from 2020’s woes. I’d certainly be more likely to pay up for its shares over those of IAG. 

Reasons to be optimistic

On the Beach benefits from being a purely online, asset-light entity. This means it’s none of the fixed costs that physical travel agents must pay, even if no/very little revenue is being generated. This is partly why, prior to the pandemic, it was generating excellent returns on the money invested in the business.

Contrast this with IAG. The fact the airline is barely flying at anywhere near capacity right now doesn’t mean all costs have been drastically reduced. Aircraft still need maintaining whether they’re in the air or not.

As well as being asset-light, On the Beach’s business model is very flexible. If issues occur in specific destinations, it can quickly move its marketing spend elsewhere. IAG, or any airline for that matter, isn’t quite so adaptable.

Also, On the Beach has a far sturdier-looking balance sheet than IAG. Excluding customer pre-payments, it has £51m in net cash at the end of last month. The sale of artwork by British Airways back in November is a great indication of just how bad things are over at IAG. 

Volatility ahead

Naturally, all investments involve risk and On the Beach is no exception. While its aforementioned qualities should provide better protection over others in the space, the ongoing saga that’s Brexit could still cause the share price to be volatile in the near term.

As things stand, we still have no idea whether a Brexit trade deal will be agreed before the end of the transition period on 31 December. 

Even so, I don’t think a ’90-day rule’ on travellers visiting the continent from the UK is likely to bother OTB’s customer base for long. Nor will queueing in a different lane at border control or getting a passport for their pet. They just want to go on holiday for a week or two!

Is On the Beach the best UK share to buy now? No. Does it have the qualities to survive and thrive after the coronavirus storm has passed? Very probably.

Some may be drawn to the IAG share price as a momentum play. Then again, I know which business I’d rather own within my ISA. On the Beach goes on my watchlist.

The post Forget the IAG share price. If there’s one travel stock I’d buy for my ISA, it would be this appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended On The Beach. 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.

Dire as the situation may be however, I do think there is the potential for some to recover once the coronavirus storm has passed.

On sale?

Considering its staid-looking high street stores, I’ve long thought the valuation attached to WH Smith (LSE: SMWH) to be frothy. Having now fallen a little over 60% from the all-time highs achieved back in January, this may no longer be the case. 

This is, after all, a company that’s seen its travel concessions business become very lucrative over the last few years. Further evidence of this came in January. The FTSE 250 member reported a 19% rise in revenue. This included contributions from recent US acquisitions InMotion and Marshall Retail Group.

Of course, the next few months are likely to prove very tricky. For as long as travel is restricted and high streets are deserted, WH Smith won’t make any money. Units operating in hospitals are an exception though.

Nevertheless, I’m a big fan of businesses that serve a captive audience and the company now operates 1,200 travel stores in 32 countries. There’s also a lot to be said for the fact that WH Smith generates superb returns on the money it invests when it is functioning at full steam. Margins aren’t massive but they’re still better than a lot of other retailers out there. The debt it carries isn’t excessive either.

I’m not sure I’d be pulling the trigger and buying a few shares just yet. But I’m definitely sensing an opportunity. 

Debt-free

Stockport-based holiday firm On the Beach (LSE: OTB) is another company that could rise from the ashes of the coronavirus-induced market crash. Like WH Smith, a lot of this depends on how quickly the virus is tackled and the lockdown lifted. 

For On the Beach, it also depends greatly on how the UK general public respond once the full financial impact of the crisis is known. The possibility of a prolonged recession will surely mean that discretionary purchases like a stay in the sun will be the first to go.

Seen from this perspective, On the Beach could certainly suffer more than the newsagent. The latter will benefit merely from commuters returning to the office after the enforced break. That said, there are still reasons to be optimistic.

For one, there’s no debt on its balance sheet. This is not to say that even previously financially sound businesses won’t go to the wall in 2020. It should provide investors with some hope going forward though.

Second, On the Beach has an asset-light business model. This means it’s not burdened by massive fixed costs like other businesses in the sector. Marketing spend can be (and has been) cut quickly. For me, this makes it a safer bet than, say, TUI, which operates a portfolio of hotels, cruise lines and airlines.

On the Beach’s share price is now back to levels not seen since 2016. Does this make it a ‘bargain’? I still think it might be too early to say. But it’s worth keeping an eye on, I feel. 

The post The coronavirus has battered travel stocks but I’d back these growth stars to recover appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended On The Beach and WH Smith. 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.

Notwithstanding this, it does seem logical to suppose rivals to the 178-year-old firm will be benefit from reduced competition. One is On the Beach (LSE: OTB). 

According to today’s (brief) update, trading over the year to the end of September has “remained in line with management’s revised expectations for the full year.” While encouraging, it’s arguably more important the company went on to state the aforementioned liquidation of its rival had “created an unprecedented opportunity to take additional market share at an increased rate” and it would be increasing its marketing spend as a consequence. 

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of SSP Group. The Motley Fool UK has recommended On The Beach. 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.

Indeed, since the beginning of the month, the stock has jumped by more than 100%. At one point the stock had surged by more than 200%.

I’m not buying into this rally because Thomas Cook is in the process of completing a massive recapitalisation plan and full details of the scheme are not yet available. The £750m rescue deal will strengthen the group’s balance sheet, and a debt-for-equity swap is also being considered as part of the process.

Management has already confirmed that “existing shareholders will be significantly diluted as part of the recapitalisation,” and it is currently unclear how or if existing holders might be able to take part in the recapitalisation. 

“Shareholders may be given the opportunity to participate in the recapitalisation by way of investment alongside Fosun and converting financial creditors on terms to be agreed,” Thomas Cook said in its recapitalisation announcement. 

All of the above seems to suggest that current shareholders could be wiped out in the recapitalisation. With this being the case, I’d make the most of the recent rally to sell shares in Thomas Cook and buy its fast-growing peer, On The Beach (LSE: OTB) instead. 

Booming sales

On The Beach is one of the reasons why Thomas Cook has started to struggle in recent years.

The low-cost online holiday provider allows customers to book their own trips without having to go through a travel agent. By cutting out the middle man, On The Beach can offer holidaymakers much more for less, and customers are flocking to its offering. 

Sales have grown at an average rate of 23% per annum since 2013, and net income has surged from £3.4m to £21.5m. 

City analysts had been expecting the firm to report further earnings growth of nearly 40% for 2019, but unfortunately, it now looks as if the company will miss this target. 

Buying opportunity

According to a trading update issued by the business today, On The Beach’s sales are suffering from sterling weakness. The company says that unlike its peers, it does not use currency-hedged pricing for the packages that it provides its customers. Therefore, as the value of sterling has declined, prices have increased, putting off customers. As a result, management now expects to miss its growth targets for the year. 

In my opinion, this is just a small setback for the firm. On The Beach has been able to succeed thanks to its unique business model, investment in technology and efficient customer service. Management is still spending heavily in these areas and is not cutting back, despite headwinds. The group is consolidating its position in the market, according to the recent trading update, and refining its marketing tactics as well as the customer offering. 

In my opinion, these efforts should help the company maintain its competitive position in the market and return to growth when currency volatility subsides. With that in mind, I reckon it could be worth making the most of today’s slump to snap up some shares in On The Beach as a long-term investment. 

The post After its 100% rise I’d sell the Thomas Cook share price today to buy this growth champion appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended On The Beach. 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.

At the close of play yesterday, the former travel titan’s share price was down 85% from one year ago thanks to a spate of profit warnings and ongoing political and economic uncertainty.

Today’s interim numbers, while never likely to be pretty, haven’t helped matters. The stock is being hammered once again as I type.

Is the writing on the wall for the former FTSE 100 constituent?

Battered by Brexit

Despite revenue of just over £3bn in the six months to the end of March being “in line” with that achieved last year, an underlying loss from operations of £245m was reported due to margin pressures. 

All told, the company booked a £1.46bn pre-tax loss after also writing down the value from the merger of its UK business with MyTravel 12 years ago. 

Reflecting on today’s results, CEO Peter Fankhauser stated that there was “little doubt” that the uncertainty around our EU departure had stopped UK customers from booking their summer holidays.

Ominously, the mid-cap also stated that promotional activity, combined with higher hotel and fuel costs, would put a drag on profits for the full year. 

News of “good progress” elsewhere — such as multiple bids for its airline business, the opening of 12 hotels and progress on joint ventures in China and Russia — did little to stop the flood of sellers.

It’s clearly no surprise that Thomas Cook is now making every effort to reduce costs where it can.

A total of 21 retail stores have been shut so far with a review of its foreign currency business also under way. 

Separately, the company has now agreed to a £300m bank facility with its lenders to help it through this winter. Worryingly, net debt already stands at £1.25bn with the company valued at only £350m yesterday. 

Perhaps unsurprisingly, I’m not a fan of the shares, even if they were trading on a little over 3 times forecast earnings before markets opened.

While there will always be some bargains out there, I suggest that Thomas Cook isn’t one of them. 

It might not be doomed but I’ll be leaving this one to the traders.

Better prospects

Of course, there are better bets for those committed to investing in the sector. Online operator On the Beach (LSE: OTB) is an example. 

Despite enduring the same uncertainties as Thomas Cook, the company reported a 41% jump in revenue (to £63.5m) and 14% increase in adjusted pre-tax profit (£15.7m) in its half-year figures on Tuesday. An 18% hike to the interim dividend was also announced.

It wasn’t all sunshine and smiles. Although only a small part of the business, revenue from overseas fell by 56% to just £400,000 after the Icelandic airline Primera Air collapsed into administration in October.

While a larger company than it was a few years ago, much of On the Beach’s appeal remains its flexible business model and the lack of huge costs that come from running hotels and keeping aircraft maintained.

That said, prospective buyers should consider just how likely it is that this advantage might be eroded by rivals over time, not to mention the cyclicality of the travel stocks generally.

Currently, On the Beach’s shares change hands for 18 times forecast full-year earnings.

The post Is this former FTSE 100 stock doomed? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended On The Beach. 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, I’m looking at two stocks offering a mix of income and growth. Both are highly profitable and appear to be performing well. I believe they could be profitable stocks to tuck away for the next decade.

Bowling for cash

Bowling alley operator Ten Entertainment Group (LSE: TEG) operates the Tenpin chain of bowling centres, which has 43 sites around the UK. This company only floated on the stock market in April 2017, but has performed well so far and has already earned a place on my watch list.

Last summer’s heatwave wasn’t good for indoor attractions, but like-for-like sales at the firm’s venues still rose by 2.7% last year. Four new sites added to total sales, which rose by 7.5% to £76.4m. Adjusted pre-tax profit was 4% higher, at £13.5m.

Despite a challenging summer, the group generated an operating profit margin of 14.9% in 2018 and earned a return on capital employed of 18.2%. This figure shows that the firm generated £182 of profit for each £1,000 of capital tied up in the business last year. That’s a good result.

A buying opportunity?

At the time of writing, Ten’s shares were trading at about 220p, more than 20% below last summer’s 280p+ highs.

I think this could be a buying opportunity. 2019 has started well with the firm, with a 5.1% increase in like-for-like sales during the first 11 weeks of the year. Analysts expect the group’s adjusted earnings to rise by about 25% this year. A similar increase is expected to the dividend.

These forecasts put the stock on a 2019 price/earnings ratio of 10.5, with a dividend yield of 5.6%. In my view that looks good value for such a profitable business. I’d be happy to pick up some stock at this level.

Sun, sea and sand

My next pick is online travel agent On the Beach Group (LSE: OTB). This group specialises in European beach holidays and has a 20%+ share of this market in the UK.

Unlike struggling rivals such as TUI and Thomas Cook, On the Beach doesn’t operate aeroplanes or hotels. It simply uses its buying power and technology to negotiate good deals with established operators. Customers like On the Beach because they can book personalised holidays quickly and simply online.

The company’s business model requires very little upfront investment, making it extremely profitable. Figures for the year to 30 September 2018 show On the Beach generated an operating margin of 25% and a return on capital employed of 21% last year. Pre-tax profit rose by 23.7% to £26.1m, while net cash rose from £33m to £47m.

Analysts expect the group’s profits to rise by a further 20% in 2019. And although the dividend yield is low, at just 0.9%, I believe this firm’s hefty cash balance should mean that shareholder returns will rise quickly. I think there’s also a chance this business could become a takeover target.

The shares have pulled back from last year’s highs of more than 600p. Trading at about 450p, On the Beach has a forecast price/earnings ratio of 18 for the current year. I rate the shares as a long-term buy at this level.

The post 2 dividend growth stocks I’d buy for my ISA and hold for 10 years appeared first on The Twelfth Magpie.

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Roland Head 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.