Buying shares which have experienced strong performance in recent months may not be a sound strategy on its own. After all, the margin of safety on offer is likely to have been reduced due to a higher valuation. However, in some cases a company’s rising share price may signal the start of a period of improved performance. And if the valuation on offer remains relatively enticing, buying it could be a logical move.
With that in mind, here are two stocks which appear to offer the scope for further share price gains.
Improving outlook
The share price of gold producer Polymetal (LSE: POLY) has risen by 22% since the start of the year. Much of this has been due to the rising price of gold, which has become increasingly popular as uncertainty regarding the global growth outlook has increased. President Trump’s spending plans have also meant that the prospects for inflation are now more bullish than previously thought, which has made a natural store of wealth such as gold more attractive to investors.
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As well as a rising gold price, Polymetal’s shares have been boosted by improving financial performance. Its production update released on Wednesday showed that it has increased gold equivalent production by 8% in the first quarter of the year. This was comprised of a rise in gold production of 18%, a fall in silver production of 15% and an increase in copper production of 88%.
Looking ahead, Polymetal is expected to record an increase in its earnings of 23% in the current year. It is due to follow this with growth of 14% next year. This puts it on a price-to-earnings growth (PEG) ratio of just 0.8, which indicates that now could be the perfect time to buy it for the long run.
Dirt-cheap valuation
While much of the Oil & Gas industry has underperformed the wider index in 2017, exploration and development company Serica Energy (LSE: SQZ) has recorded a share price gain of 116% since the turn of the year. Despite this, it continues to trade on a relatively enticing valuation. In the current year, the company’s bottom line is forecast to more than double. This puts it on a forward price-to-earnings (P/E) ratio of just 4.6, which indicates that there is a wide margin of safety on offer.
Looking ahead, the Oil & Gas industry may experience a turbulent period. While demand is likely to catch-up to supply in the near term, there is no guarantee of further cuts to production by OPEC. As such, the oil price may remain volatile and could even fall in the coming months. While this may lead to a difficult period for investors in Serica Energy and in the wider industry, in the long run the margin of safety on offer indicates that the upside potential is significant.
