As stock markets inch up, there has been a broad-based increase in UK share prices. But not all stocks have equally good prospects. Here are two examples of stocks whose share prices have risen over the past few months. But I would buy one and avoid the other.
SThree: robust performance
Recruiting company SThree (LSE: STEM) is trading near all-time highs today after it released a robust trading update. Net fees charged by it grew by 22% in the second quarter of 2021 compared to last year. Even compared to 2019, the science, technology, engineering, and mathematics (STEM) focused company has seen an 8% increase. This tells me that the company has put the pandemic’s impact behind it.
Supported by diversification
I reckon that its diversification has helped here. Almost half of the company’s business comes from technology, followed by life sciences and engineering. Banking and finance accounts for less than 10% of it. The past year has been poor for financials, as the sector is closely linked to economic performance. On the other hand, a look at FTSE 100 technology related companies from software providers to e-tailers shows that they have had a positive year. Some smaller life sciences companies have also benefited from research on Covid-19 drugs, tests, and vaccine development.
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SThree is also geographically diversified. Germany is its biggest source of revenues, followed by the US and Netherlands. The UK is only its fourth largest market. All its top three markets have grown in the first-half of 2021, with the US having shown the most notable increase of 24%.
Although the company has held back from any forward looking statements this time, it does mention an upgrade in its profit expectations for the year made earlier this month.
I think all looks well for SThree, but it is at a high. And some patience may be required before it shows big returns from here. That said, it looks like a good long-term stock for me to buy.
Saga: lack of clarity
By contrast, cruise operator and insurance provider Saga (LSE: SAGA) appears less like a sure thing to me. Before the pandemic, cruises brought in more than half its revenues, followed by a big share from insurance. However, cruise revenues have dwindled as travel remains under lockdown. With strong cruise bookings, I would typically be less concerned about the current weakness in the segment.
However, these bookings will materialise only if government restrictions are lifted. With a rise in Covid-19 infections, there is much media speculation on whether the final phase of the lockdown will indeed be lifted in time. Moreover, its insurance sales are also behind last year.
My takeaway for the UK shares
Saga could be a good share to buy if I am convinced about the prospects for the travel industry. At this point, however, I am not. I would like to wait and see how the situation develops and make a decision accordingly. On the other hand, SThree looks like a good UK share for me to buy today, whether or not the markets rise.
