Shares in intellectual property-focused company ARM (LSE: ARM) have had a very positive month, rising by over 8% after upbeat results were released. They showed that revenue and earnings are continuing to rise at a rapid rate, as ARM benefits from increased shipments in smartphones and tablets across the globe.
Interestingly, the company is also diversifying into other areas and has tremendous opportunity to benefit from the planned rise in the ‘Internet of Things’. This could provide the company with renewed growth opportunities, since there have been concerns raised among investors that ARM is becoming a more mature business which will aim to increase dividend payments in future.
While this is true in some respect, with ARM expected to raise the amount it pays to its shareholders by 22% this year, its earnings growth potential remains very high. This year its bottom line is set to rise by 66%, while next year the figure is 14%. Therefore, further capital gains appear to be on the cards over the medium term.
Similarly, Diageo (LSE: DGE) also has a bright future, looking set to benefit from the increasing prevalence of middle class consumers in China and the rest of the emerging world. In China, the incomes of urban dwellers are forecast to rise rapidly in the next five years, with up to three-quarters of them expected to be earning above $9,000 per annum by 2020. This, alongside continued growth in demand for premium spirits in other key markets such as India, indicate that Diageo’s bottom line could be boosted by improving external factors.
Clearly, Diageo has been a disappointment this year. Its shares are up by just 1% since the turn of the year. However, it has considerable capital gain potential due to its growth prospects and, with its shares trading on a price to earnings (P/E) ratio of 20.9 (which is lower than many of its global consumer peers), there is clear upside potential over the long run. Additionally, with a bid for SABMiller having already taken place, the global beverages industry may experience a period of consolidation which could have a further positive impact on Diageo’s share price.
Meanwhile, shares in display and lighting technology company Nanoco (LSE: NANO) are up by almost 10% today on no significant news flow. Its most recent results showed that its pretax loss had widened versus the same period in the prior year, with it increasing to £10.9m from £9.1m in the previous full-year. This was due to higher operating costs as well as exceptional costs linked to its move from AIM to the main market during the year.
Furthermore, with delays in customer sampling expected from its manufacturing plant in South Korea, the recurring revenue from the plant is now expected to be delayed until later on in the current financial year. As such, and with Nanoco expected to remain in the red in the current year, it appears to be a stock worth watching rather than buying at the present time.