Since 2008, the financial markets have been on an incredible bull run. The FTSE 100 is 45% up since late 2008 and the FTSE 250 is up over 150%, obvious illustrations of the great rise we have had. The rise has been driven by recovering economies around the world, and cyclical stocks have seen some amazing share price rises. Today I’m analysing whether highly cyclical stocks still have gains to be had or if it’s time to take profits…
Ashtead Group
Since 2008, the equipment rental company Ashtead Group (LSE: AHT) has risen over 1200%. The US-focused company is forecast to make over £400m profit in 2016 but still trades on a PE of only 11 — this would suggest there is some upside to be had. There is a small dividend yield of around 1.4% but this is covered by over four times in cash, so there is again scope for a considerable dividend increase over the next few years. The share price is down from highs due to worries about the US economy, which means the current share price offers an attractive entry point for investors that believe the US will continue to grow.
Somero Enterprises
Somero Enterprises (LSE: SOM) has also seen a similar share price rise; since 2010, the company has seen an increase of its share price by 950%. Much like Ashtead it is focused on the US market mainly, and provides laser-guided equipment for levelling flooring. Sales in North America rose by 27% in the first half of 2015 but the management really want to crack the Chinese market. The shares trade on a cheap PE of 9 and pay a nice dividend yield of 3%. On 7 January, the company announced that sales were at an all-time high in December, and the company expects revenue to be ahead of expectations. This bodes well for the full-year results, and getting in before they are released may be wise. ..
Persimmon
Blue-chip housebuilder Persimmon (LSE: PSN) has ridden the wave since 2009 and is now up over 500%. Even after such a big rise, the shares are priced in the lower half of its peer group. The PE is a reasonable 12, and the main attraction is the bumper dividend yield of over 5%. Earnings per share is increasing rapidly and is forecasted to grow again by over 10% this year, putting the shares on a forward PE of just over 10. This shows that Persimmon are in a great position to take advantage of the UK’s housing shortage and continue to grow revenue and profits for years to come.
It is pretty obvious to many that we are reaching the latter part of the positive macro-economic trend of the last few years. This means that these highly cyclical stocks are reaching all-time highs. However, there is still some upside left on the table in these stocks, and if we plateau or continue to grow then these stocks will begin to fly again.
