2 bargain recovery stocks that could make you brilliantly rich

These two shares offer wide margins of safety.

| 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.

sdf

When buying shares in companies which have delivered disappointing share price performance, seeking a wide margin of safety is crucial. Not only does it provide a lower risk profile for an investor, it also means that the potential rewards on offer may be high. Certainly, there is scope for continued volatility and disappointment with any recovery stock in the near term. But in the long run they can perform exceptionally well. Here are two shares which seem to offer stunning long-term growth potential.

Positive update

Reporting on Tuesday was oil and gas producer Nostrum (LSE: NOG). The company’s half-year results showed it is making progress with its strategy. Revenue increased from $163.5m in the first half of 2016 to $210m in the same period of the current year. Its net operating cash flow of $118.5m was a major improvement on the $78.9m from the prior year. Its transport per barrel of oil equivalent cost was further cut to $5 from $5.30 last year, which shows the business has the potential to become increasingly efficient over the medium term.

Nostrum’s average daily production for the six-month period was 46,685 barrels of oil equivalent. It has been able to deliver a successful new bond issuance, while its construction of the third Gas Treatment Unity continues to be in line with guidance. This is due to complete before the end of 2017.

With Nostrum having recorded a share price fall of 24% in the last three months, it has clearly been a difficult period for the company’s investors. Looking ahead, more volatility could be present due to the uncertainty regarding the oil price. However, with the company performing well from an operational standpoint, it could produce high capital returns. That’s especially the case since it trades on a price-to-earnings growth (PEG) ratio of just 0.1. This suggests a wide margin of safety is currently on offer.

Encouraging outlook

Also posting significant losses for investors in the last three months has been pharmaceutical company Shire (LSE: SHP). Its news flow has been somewhat disappointing and management changes seem to have affected investor sentiment to at least some degree. In the short run, there is the potential for further volatility in the company’s share price. However, in the long run its tie-up with Baxalta could lead to a more profitable business which is worthy of a considerably higher valuation.

Next year, Shire is forecast to report a rise in its bottom line of 9%. Since it trades on a price-to-earnings (P/E) ratio of just 9.8, this means it has a price-to-earnings growth (PEG) ratio of only 1.1. As such, there is obvious scope for an upward re-rating. Given the strength of its pipeline and the potential synergies from the recent merger, its overall outlook is relatively positive. Within an industry which may become more important among investors due to its low positive correlation to the wider economy, now could be the perfect time to buy Shire.

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.

Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has recommended Shire. 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

More on Investing Articles

UK financial background: share prices and stock graph overlaid on an image of the Union Jack
Value Shares

The BP share price is climbing – see how much £10k invested 1 month ago is worth now

It's been a tough few years for the BP share price. Harvey Jones examines whether the FTSE 100 oil giant…

Read more »

Santa Clara offices of NVIDIA
Investing Articles

Nvidia stock has soared 1,471% in 5 years. Here’s how I’m hunting for the next Nvidia!

Nvidia stock has put in a stunning performance over the past five years. This writer tries to apply some lessons…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

If someone decided to start buying shares with £10k a year ago, here’s what they could be sitting on now!

If someone had started buying shares a year ago with £10k, what might have happened? Our writer outlines some factors…

Read more »

Rolls-Royce's Pearl 10X engine series
Investing Articles

The Rolls-Royce share price is close to an all-time record. Could it still be a bargain?

The Rolls-Royce share price has been punching out the lights of late. Our writer thinks things could get even better…

Read more »

4 Teslas in a parking lot at a charger station
Investing Articles

The Tesla share price slips further — how much would £10k invested at the start of the year be worth now?

The Tesla share price remains under pressure, with risks mounting from multiple directions. Here’s what a £10,000 investment would be…

Read more »

British pound data
Investing Articles

The Ocado share price is a sea of red! Time to cut my losses?

Every time Harvey Jones checks out the Ocado share price, he sees red. Will it ever stop falling and leaving…

Read more »

Road 2025 to 2032 new year direction concept
Investing Articles

Over the next 5 years, I think these S&P 500 stocks will make me more money than a global index fund can

Edward Sheldon believes that these two high-quality S&P 500 growth stocks have the potential to beat the market over the…

Read more »

British union jack flag and Parliament house at city of Westminster in the background
Investing Articles

Over the last 2 years, this investment trust has doubled the FTSE 100 index’s return

Here are three key reasons why our writer reckons this high-quality investment trust from the FTSE 100 index is worth…

Read more »