We remain long-term investors here at The Motley Fool UK, and strive to hold any stock we buy for a minimum of three to five years. This period of time usually allows the promising underlying trends we view in a company to start to flow through to revenues.
Sometimes, of course, we see share prices spike sooner than expected! And often that’s due to the market rerating the stock. So which have strong potential to surge before the end of the year?
B&M European Value Retail
What it does: B&M European Value Retail sell a broad range of low-cost products from 1,200 stores across the UK and France.
By Royston Wild. Retailer B&M European Value Retail (LSE:BME) has sunk in value following June’s full-year financial results. Investors were spooked by the company’s failure to provide solid earnings guidance for the current fiscal period.
I consider this to be a prime dip buying opportunity. At the time of writing, the FTSE 100 firm’s share price has soared almost 74% over the past five years as consumer demand for value has taken off. Encouragingly for B&M and its share price, this retail trend is tipped to continue through to at least the end of the decade, too.
The company is embarking on rapid expansion to capitalise on this opportunity, too. It opened 78 gross new properties last year, and has plans for a further 45 B&M stores in Britain alone in current 12-month period.
There’s always danger that the business could overextend itself by expanding too rapidly. However, the firm’s strong track record gives me confidence that it can make good on its ambitious growth strategy. Revenues and pre-tax profit soared 10.1% and 14.1% respectively last year.
Royston Wild does not own shares in B&M European Value Retail.
B&M European Value Retail S.A
What it does: B&M European Value operates a series of discount retail outlets differentiated by a focus on branded goods.
By Stephen Wright. Shares in B&M European Value Retail S.A (LSE:BME) are down around 18% since the start of the year at the time of writing. But I think the company’s latest results show that a comeback could already be on the way.
Key to the firm’s growth is its ability to increase its revenues by opening new stores. This is going well, with 19 new outlets during the last three months and more to follow by the end of the year.
Not everything has been going to plan, though. On a per-store basis, sales have been lower than last year due to unusually bad weather leading to weak demand for seasonal summer inventory.
I still think there’s a good chance for the stock to mount a recovery before the end of the year, though. The share price moving higher after the latest news indicates this could be on the cards.
Stephen Wright does not own shares in B&M European Value Retail S.A.
Barratt Developments
What it does: Barratt is a FTSE 100 housebuilder operating across the UK under the Barratt Homes and David Wilson brands.
By Roland Head. It’s hard to separate politics from business when it comes to housebuilding, but I think that Barratt Developments (LSE: BDEV) is one of the best ways to play this theme.
The shares fell by around 15% during the first half of 2024, but a trading update on July 10 seemed positive to me. Barratt completed just over 14,000 new homes during the year to 30 June, at the top end of expectations. Sales rates improved, too.
One risk is that completions are expected to fall slightly during the current financial year, which will end in June 2025.
However, I suspect this may be a cautious target that could be upgraded if interest rates fall. Clarity on housing policy from the new government could also support demand for 2025 and beyond.
If sentiment towards the housing market improves later this year, I think Barratt shares could end the year in the black.
Roland Head does not own shares in Barratt Developments.
Diageo
What it does: Diageo is a major alcohol beverage company. It owns premium brands such as Captain Morgan and Guinness.
By Charlie Keough. As I write, Diageo (LSE: DGE) is down 10.5% year to date. I reckon we could see it reverse its fortunes in the upcoming months.
Interest rate cuts should offer a big boost for the business. Consumers have been tightening their purse strings in the last few years. But as rates begin to come down, we should start to see spending pick up again.
What’s more, its share price looks like it has growing room. Today, the stock trades on a price-to-earnings ratio of 18.4. That’s cheap by the company’s standards. Its historical average is around 23.8.
Of course, a delay in rate cuts could always lead to Diageo falling further. But with the first base rate cut forecast for September and potentially more over the remaining months of 2025, that could see its share price rally.
While I wait for the stock to start trending in the right direction, there’s a 3.2% dividend yield on offer to tide me over.
Charlie Keough does not own shares in Diageo.
Rio Tinto
What it does: Operating in 35 countries, Rio Tinto is one of the largest mining and metals companies in the world.
By Paul Summers. Shares in mining giant Rio Tinto (LSE: RIO) have been impacted by lower demand from buyers such as China and poorly received production updates.
In my opinion, these headwinds all look temporary and priced in. Rio’s stock currently trades at less than nine times forecast earnings. That’s lower than the FTSE average. It could also prove a steal in time given the huge and ongoing demand for copper, aluminium, and lithium as the world gradually switches to renewable energy sources.
We can’t know for sure when the tide will turn and, of course, Rio has no control over commodity prices. But the best time to buy cyclical stocks like this is when they are out of favour.
In the meantime, there’s a monster dividend yield of almost 7% that looks set to be easily covered by expected profit.
Paul Summers has no position in Rio Tinto
This post was originally published on Motley Fool
