Today I’m looking at three high-flying stocks which have ignored the market downturn and delivered massive returns for investors this year.
Will there be more to come in 2016, or is it time to take profits?
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Shares in Empresaria Group (LSE: EMR) have risen by 135% so far in 2015. This AIM-listed small cap recruitment firm operates in the UK, Finland and Germany, plus a wide range of Asian and Middle Eastern markets.
Happily for investors, Empresaria’s focus on sectors such as finance, IT and retail means it is not heavily exposed to the oil market. Earnings per share are expected to be around 17% higher this year than in 2014.
Empresaria recently acquired a US healthcare recruitment group for $12.1m and earnings per share are expected to rise by another 14% to 10.1p in 2016. This puts Empresaria shares on an undemanding forecast P/E of 10.5.
Further gains appear possible in 2016, but I would caution that recruitment tends to be a cyclical business, so sharp downturns are also possible. The dividend yield is also less than 1%, so Empresaria isn’t a stock for income hunters.
US-based oil and gas explorer Pantheon Resources (LSE: PANR) is definitely not a stock for widows and orphans.
The shares have risen by a whopping 435% to 86p this year, thanks mainly to the success of the VOBM#1 well in Texas. Pantheon has a 50% stake in this well, which produced 1,500 barrels of oil equivalent per day when put onto test recently.
Pantheon’s share price doubled in just a few days following news of this discovery, and has since gone on to make new highs. The only problem is that Pantheon’s second well, VOS#1, isn’t going so smoothly.
VOS#1 has encountered an unexpected oil and gas bearing zone at 12,600ft. Although this sounds like good news, it isn’t the target for the well and has required additional work to enable the firm to carry on drilling. There’s no indication yet of whether this find will be commercially viable and drilling costs could now be much higher than expected.
Pantheon shares now trade on 7.6 times their net asset value. If VOS#1 is anything other than a blockbuster success, this stock could fall sharply.
In my view, now might be a good time for investors to take some profits on this adrenalin-fuelled stock.
Redde (LSE: REDD) provides claims management and related services for the motor insurance industry. The group’s share price has risen by 85% this year. Earnings per share rose by 19% for the year ending in June and are expected to rise by another 11% in the current year.
One of the firm’s main attractions for investors is its 5% dividend yield, which appears to be covered by both earnings and free cash flow. Although Redde shares trade on a demanding 2015/16 forecast P/E of 20, the firm’s high yield and net cash balance of £39m do look attractive to me.
If earnings continue to rise and remain backed by free cash flow, then further gains could well be possible next year. Having said that, I’d expect a more modest improvement than we’ve seen this year, as earnings growth does appear to be slowing.