2 rising stocks I’d buy in July

These two shares could continue to deliver capital gains.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Buying shares in companies which have delivered high capital gains in the recent past may sound counterintuitive to many investors. After all, such stocks will have narrower margins of safety and this could mean more downside and less upside potential.

However, the reality is that many stocks can continue to make major gains even after a purple patch. As long as their valuations remain sensible, then buying them can prove to be a sound move. Here are two companies which appear to fall neatly into that bracket.

Improving performance

Reporting on Monday was lifestyle brand Supergroup (LSE: SGP). The company’s results for the full year showed further progress has been made with its strategy. Under the current management team, it has sought to expand and diversify its operations, while becoming increasingly efficient.

The effect of this has been a rise in sales of 27.4%, with underlying earnings gaining 17.4% on a per share basis. The company seems to have benefitted from a multi-channel approach. It has sought to broaden its sales channels, with its Wholesale business now a more prominent part of the business. Similarly e-commerce has undergone further investment, while the firm has expanded into new territories and become increasingly innovative in terms of the range of its products.

Looking ahead, Supergroup is expected to grow its bottom line by 13% in both the current year and next year. This puts its shares on a price-to-earnings growth (PEG) ratio of just 1.1, which suggests they offer growth potential at a reasonable price. That’s despite their rise of 26% during the last year. As such, while they may not have as much capital growth potential as a year ago, they continue to offer a logical investment outlook.

Brand strength

Also rising significantly in the last year have been shares in Burberry (LSE: BRBY). They have easily outperformed Supergroup and are now 42% higher than they were a year ago. At least some of this gain is due to the weaker pound. Burberry operates mostly abroad, and its key markets remain places such as China, the US and other major world economies. Therefore, it has benefitted from a depreciating pound in the last year, with a positive foreign currency translation being the result.

However, Burberry has also made changes to its business that have positively impacted on its performance. Efficiencies and cost savings seem to have been welcomed by the market, while its change in management structure may also lead to a better-organised business over the medium term.

Looking ahead, Burberry is expected to grow its bottom line by 12% next year. This puts it on a PEG ratio of 1.5. Given its size, scale and diversity, this appears to be a low price to pay. Furthermore, the company has a high degree of customer loyalty which may make its overall performance and returns more sustainable than some of its sector peers in the long run.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of Burberry. The Motley Fool UK has recommended Burberry and Supergroup. 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.

More on Investing Articles

Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Google office headquarters
Investing Articles

1 reason I like buying S&P 500 shares – and 1 reason I don’t

Will this investor try to improve his potential returns by focusing more on S&P 500 shares instead of British ones?…

Read more »

Young woman holding up three fingers
Investing Articles

3 SIPP mistakes to avoid

Our writer explains a trio of potentially costly errors he tries to avoid making when investing his SIPP, on an…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

Here’s how (and why) I’d start buying shares with £25 a week

Our writer uses his investment experience and current approach to explain how he would start buying shares on a limited…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Here’s my 5-step approach to earning passive income of £500 a month

Christopher Ruane explains the handful of steps he uses to target hundreds of pounds in passive income each month.

Read more »

Investing Articles

2 UK shares I’ve been buying this week

From a value perspective, UK shares look attractive. But two in particular have been attracting Stephen Wright’s attention over the…

Read more »

Investing Articles

A lifelong second income for just £10 a week? Here’s how!

With a simple, structured approach to buying blue-chip dividend shares at attractive prices, our writer's building a second income for…

Read more »

Investing Articles

Here’s how I’d use a £20k Stocks and Shares ISA to help build generational wealth

Discover how our writer would aim to turn a £20k Stocks and Shares ISA into a sizeable nest egg by…

Read more »