These ‘cheap’ UK shares have risen 60%+ in a month. Which would I buy today?

Recent vaccine news has sent these travel and leisure stocks soaring. Roland Head reveals which of these three UK shares he’d keep buying.

| 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.

Recent vaccine news has triggered an incredible rally for many UK shares in the travel and leisure sectors.

Today, I’m looking at three stocks that have risen by at least 60% over the last four weeks. I think all three businesses will be survivors, but there’s only one of these shares I’d buy today. Read on to find out why…

Recovery could be slow

I think that demand for package holidays will probably bounce back quickly from next summer. But I think FTSE 100 holiday operator TUI (LSE: TUI) could take longer to recover.

TUI’s operations are far-reaching and complex. According to the firm’s website, it owns 150 aircraft, over 400 hotels and 17 cruise ships. It operates in 180 regions. It’s hard to imagine how the firm has handled the disruption caused by the coronavirus pandemic.

However, one thing we do know is that TUI has taken on around €4bn of new debt in order to survive this year. When business returns to normal, this debt will still need to be paid back. I think this is likely to put pressure on shareholder returns for several years.

I can also see some risk that TUI will raise cash to repay debt by issuing new shares, diluting existing shareholders.

However I look at it, TUI shares look expensive enough to me at the moment. I’m not buying.

This UK share could suffer delays

Trainline (LSE: TRN) is well known for its online rail booking service. In 2019/20, this business generated sales of £261m, 24% higher than in 2018/19. Trainline’s results for the current year have obviously suffered. But, in theory, I’d expect this business to bounce back quickly and be highly profitable.

Unfortunately, that’s not the case. Trainline reported an £81m loss last year and a £14m loss the previous year. Despite its high-tech credentials, this business doesn’t seem to be very profitable.

I guess things may improve if the business returns to growth and continues its international expansion. But Trainline’s operating model in the UK could be affected by regulatory changes to simplify ticket pricing.

City analysts reckon the company will generate a £20m profit in 2021/22. They’re forecasting earnings of 3.2p per share for next year, which values the stock at a whopping 146 times forecast earnings. That’s much too rich for me, so this is another recent winner I won’t be buying.

The UK leisure share I’d buy

Bingo halls and high street casinos may seem out of place in the pandemic world. But when Rank Group (LSE: RNK) reopened its Mecca bingo halls in August, revenue bounced back to 70% of last year’s levels within a month. The firm reported similar performances from at its Grosvenor casinos.

Rank has an online business too, and it’s investing in growth in this area. This means the company isn’t completely dependent on physical venues. Although the current lockdown will be hitting the firm’s finances hard, Rank has already raised £70m through a share issue. Its financial situation looks fairly secure to me, assuming businesses are able to stay open next year.

At around 150p, Rank shares trade on about seven times 2021/22 forecasts, with a potential dividend yield of 3.3%. I think this could be an attractive entry point for a long-term investment. I’d be happy to buy this UK share for my portfolio, despite the stock’s recent gains.

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.

Roland Head 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

Up 26%, can the BT share price really push higher still?

The BT share price has surged on several catalysts in 2024, but there’s evidence to suggest that the stock could…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

What are the best dividend shares to buy right now?

As shares in B&M European Value Retail have fallen, the dividend yield has reached a 10-year high. Should investors be…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

My favourite FTSE 100 passive income stock that keeps the Christmas coffers full

The holiday season is expensive and can leave many consumers struggling to make ends meet. Here’s how I use a…

Read more »

Investing Articles

The latest growth forecasts suggest the Glencore share price will hit 555p!

Harvey Jones has been disappointed by the performance of the Glencore share price since he bought the commodity stock last…

Read more »

Dividend Shares

A closer look at the 11% dividend yield forecast for Phoenix Group shares

Phoenix Group shares have one of the highest dividend yields in the FTSE 100 index today. Could this be a…

Read more »

Investing Articles

If I’d put £25,000 into the FTSE 350 at the start of 2024, here’s how much I’d have today!

Many FTSE shares have rebounded this year as interest rates look set to keep heading lower and market appetite for…

Read more »

Investing Articles

Up 40%, but experts forecast the easyJet share price could soon hit 664p! Time to buy?

The easyJet share price has been flying lately and stock analysts are predicting more fun to come. But there's only…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

Worried about tax raids? Here’s how I’m targeting a £44,526 passive income with shares

Investing in a Self-Invested Personal Pension (SIPP) or Individual Savings Account (ISA) can supercharge one's passive income, says Royston Wild.

Read more »