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.

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

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Is now the right time for me to buy revived FTSE national institution Marks and Spencer?

Marks and Spencer was once a revered FTSE 100 firm, but poor decisions led to its demotion in 2019. Now…

Read more »

Market Movers

Up 11% today, can this FTSE 250 stock finally get motoring?

Jon Smith explains why the Aston Martin share price has jumped this morning, but urges caution after he picks apart…

Read more »

Investing Articles

With £456m of net cash, FTSE 100 stock easyJet’s ready for take-off

Our writer's been positive on this FTSE 100 for some time, but these Q3 results and its growing cash pile…

Read more »

A senior woman sits up on the exam table at a doctors appointment. She is dressed casually in a blue sweater and has a smile on her face as she glances at the doctor. Her female doctor is wearing a white lab coat and seated in front of her as she takes notes on a tablet.
Investing Articles

Primary Health Properties: a FTSE 250 REIT with a 6% yield, a growing dividend, and a positive outlook

After its latest results show rental income growth, Stephen Wright's looking to buy a FTSE 250 REIT set to benefit…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

How much passive income could I make for every £1,000 invested in Aviva shares?

Even a relatively small investment in Aviva shares could generate much greater passive income, particularly if the dividends are reinvested…

Read more »

Close-up of British bank notes
Investing Articles

I’m considering 100 shares in this FTSE 250 gem to aim for £300 a month in dividends

Mark Hartley outlines why a lesser-known banking stock from the FTSE 250's worth considering for an income portfolio in 2024.

Read more »

Investing Articles

History suggests these UK shares might soar if interest rates are cut in August

Some UK shares could rocket if interest rates fall from its 5.25% high next month. And there's one our writer…

Read more »

Female Doctor In White Coat Having Meeting With Woman Patient In Office
Investing Articles

Here’s why H1 results could boost the AstraZeneca share price

The AstraZeneca share price has been a success story in the past five years. With H1 results due, can it…

Read more »