Got £2k to invest? I’d take a close look at these 2 turnaround stocks today

Harvey Jones picks out two poor performers that might just be ready to rebound.

| 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.

Aston Martin Laguna Global Holdings (LSE: AML) has glamour, cachet and James Bond on its side, none of which has helped its share price, which has gone into reverse since last autumn’s high profile IPO.

It’s now down 45% in six months, and has dipped slightly after today’s Q1 results. Could this a buying opportunity for long-term investors?Maybe. If you are of an optimistic bent.

Put your foot down

There’s some good news in today’s numbers, with revenues up 6% to £196m in what was a seasonally small quarter. However, adjusted EBITDA fell a whopping 35% to £28m year-on-year, although management pinned this on planned higher costs to support product expansion.

There was a 10% rise in sales of “wholesale units”, (cars to me and you) with sales hitting 1,057 against 963 a year before. This was driven by 30% growth in demand from Asia Pacific, particularly China, with the Americas up 20%. This offset UK and European softness, down 9% and 4%, respectively.

Margin call

Aston Martin made a gross profit of £83m, in line with last year, but margins dipped 2% to 42%. Net cash from operations rose £37m, as expected, while net debt stood at £590m. Management is optimistic as deliveries are significantly weighted towards the second half.

Investing in Aston Martin was never going to be an easy ride. As Rupert Hargreaves pointed out at the IPO, this is a company that has gone through seven bankruptcies. Luxury car volumes have been falling across the industry, so today’s sales increase is positive, and suggests some resilience to wider automotive trends. A doubling of retail growth in the Americas is a reward for its focus on this key region.

The £1.85bn company isn’t cheap, trading at 21.9 times forward earnings. But City analysts are optimistic, predicting earnings per share growth of 42% across 2019, followed by 90% the following year.

However, these are challenging times, and first half adjusted profits are expected to fall year-on-year, due to the non-repetition of £20m income, more fixed costs, and fewer specials. I wouldn’t rush to buy Aston Martin’s stock today.

TUI, TUI

Brexit hasn’t helped, witness the drop in UK sales, but travel group TUI (LSE: TUI) has taken an even greater hit, with a fall in holiday bookings as Britons worry about how departing the EU might hit flights, as well as their own prosperity.

The group’s share price has more than halved over the last year, despite a recent rebound after the postponed Brexit deadline prodded people into booking a summer escape.

Great escape

Today’s half-year results showed a 1.7% rise in turnover to €3.1bn at constant currency, with summer bookings falling just 3%, which is pretty good in the circumstances, while the average selling price actually rose 1%. Overall it falls into the ‘could have been worse’ category.

As well as Brexit, the group has also been hit by the grounding of Boeing 737 MAX aircraft, last summer’s heatwave (which reduced last-minute bookings), and overcapacity in Spain.

However, TUI is benefiting from its integrated model, with its booming Cruise and Destinations activities offsetting declines in Markets & Airlines. 

Earnings forecasts look bumpy but this is reflected in a valuation of just 7.1 times forward earnings. The current yield is a mighty 8.1%, covered 1.6 times by earnings. Royston Wild has previously named it a tasty proposition for income seekers. It may not be smooth sailing, though.

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.

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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

After it crashed 25%, should I buy this former stock market darling in my Stocks and Shares ISA?

Harvey Jones has a big hole in his Stocks and Shares ISA that he is keen to fill. Should he…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

How’s the dividend forecast looking for Legal & General shares in 2025 and beyond?

As a shareholder, I like to keep track of the potential dividend returns I could make from my Legal &…

Read more »

artificial intelligence investing algorithms
Investing Articles

Could buying this stock with a $7bn market cap be like investing in Nvidia in 2010?

Where might the next Nvidia-type stock be lurking in today's market? Our writer takes a look at one candidate with…

Read more »

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »