The Motley Fool

2 recovery plays I’d buy

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.

Following massive drops in their respective share prices, investors in contracts for difference (CFD) provider IG Index (LSE: IGG) and cybersecurity consultant NCC (LSE: NCC) will be forgiven for wanting to forget 2016. Nevertheless, I think both companies could rebound over the medium term. Here’s why.

Market leader

Back in December, the Financial Conduct Authority (FCA) announced its plan to implement new rules to raise standards across the CFD and spreadbetting industry. In addition to requiring customers to have more money in their accounts in order to trade, the FCA also suggested that firms disclose their average client profit/loss, use standardised risk warnings and prohibit bonus promotions.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Clearly, a development such as this was never going to be warmly received by the market. More restrictions increase the possibility of fewer clients and, ultimately, lower profits for those in the industry. That said, a drop of around 40% — also experienced by IG’s peer,CMC Markets — felt like an over-reaction, particularly as the former stated its general support for the FCA’s proposals.

Having recovered slightly since December’s fall, IG’s shares trade on a price-to-earnings (P/E) ratio of 11 for 2017. For a quality operator capable of generating consistently high returns on capital and exceptional operating margins, I think this represents a real bargain for investors, especially as the shares could re-rate sharply if the FCA is willing to listen to alternative ideas from major players in the industry. Indeed, IG has already suggested that a tool such as limited risk trading — which prevent a client from losing more than their initial deposit — could be a better solution than reducing the leverage available to customers. If this idea gains traction, expect the market to re-evaluate the £1.9bn cap market leader’s shares.

While the situation plays out, investors can capture a stonking, sufficiently-covered yield of 6.2% – over six times what you would get from the best instant access cash ISA. 

Exponential growth

Although for completely different reasons, the plunge in NCC’s share price was on par with that experienced by IG. In October, the company informed the market of three major contracts being cancelled and issues surrounding services contract renewals. Investors duly jettisoned the stock from their portfolios, despite the company seeking to reassure holders that profits would still be in line with expectations, albeit “more biased towards the second half of the year than initially expected“. While the near-term outlook looks uncertain, we should hopefully get a clearer picture of things when the company releases its interim results next Thursday. 

Thanks to new European rules forcing companies to take further steps to keep data secure, however, I’m confident that shares in NCC will eventually recover their lost form. Longer term, the exponential growth expected in the cyber-security sector should see more businesses call on its services and investors buying its stock. Let’s not forget that this company was also priced to perfection following year after year of earnings growth. Any disappointment was always likely to be punished by the market.

Even so, I appreciate that shares in the Manchester-based business still trade on a rather high P/E of 20 at the time of writing. That’s understandably a lot more than some investors will be willing to pay. Nevertheless, those with long investing horizons and higher risk appetites may wish to take a position.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Paul Summers has no position in any shares mentioned. The Motley Fool UK owns shares of NCC. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.