If I was starting off with £1,000 to invest in the stock market, I’d split it up between half a dozen ideas. My main focus would be on finding some great growth stocks that I can hold for hopefully large future gains. Yet as important as finding the right stocks is, it’s also key for me to make sure I avoid some traps. Here’s what I mean.
The push to go green
Let’s start with one company that I’d include in my initial portfolio. FirstGroup (LSE:FGP) is a leading private sector provider of public transport. It runs bus and train connections, including brands such as Avanti West Coast and GWR.
Over the past year, the stock has soared by 79%. Even though the sector might seem stagnant, the business is pushing for growth and higher profits. This can partly be achieved with the pivot to going green. Late last year it announced a 50/50 venture with Hitachi to help make and buy up to 1,000 electric bus batteries.
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Although this is a multi-year strategy push, it is ultimately expected to add several million to bottom line profits by 2026. I think buying now for the years ahead could be a smart play, as the share price should track the profits in heading higher.
As a risk, the ongoing public sector strikes do present a problem. The disruption and ultimately lost revenue that can result from these strikes is painful for the business. As we currently stand, more strikes are due for April.
Not for me
A company that I’d stay away from is the Watches of Switzerland Group (LSE:WOSG). The stock is down 57% over the past year. I don’t want to get caught up in thinking this is a gem to snap up.
The stock has dropped due to poor results over the past year. This was further compounded in January, when the business cut the forecasted revenue for the full year. Instead of the previous estimation of £1.65bn-£1.70bn, it said it now expected to be between £1.53bn and £1.55bn. This is quite a steep cut.
The Q3 results that came out last month commented that the firm was experiencing “slower demand for luxury discretionary purchases”. When I consider the mood on the ground here in the UK, the fact that we’re in a recession is certainly going to weigh heavy on people thinking about buying a luxury watch.
I struggle to see the business outperforming anytime soon, given the economic outlook and the fact that the firm is rapidly falling out of love with investors.
Of course, I could be wrong here. With a price-to-earnings ratio of 6.45, it certainly flags up as being undervalued on that metric. For long-term value investors, this could be appealing.
