One turnaround stock I’d buy and one I’d sell in 2018

Royston Wild looks at two shares with very different earnings prospects.

| 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.

The New Year brings plenty of opportunity for shares to rebound that have been under severe pressure in 2017 and possibly further back.

One such stock I’m personally tipping to thrive in 2018 is Centamin (LSE: CEY), a positive outlook for gold prices and increasing production rates looking likely to get profits moving in the right direction again following recent pressure.

City analysts are also predicting the bottom line over at Game Digital (LSE: GMD) to improve this year, and a bubbly trading update on Thursday has added extra fuel to expectations of an imminent improvement.

Sales rise

The games colossus announced today that gross transaction values (or total sales before the deduction of revenue deferrals related to loyalty points) rose 3.8% during the 23 weeks to January 6. And things were even better during the peak festive period spanning November 1 to January 6, Game Digital reporting that GTVs soared 5.2% compared to a year earlier.

Chief executive Martyn Gibbs attributed the solid performance to “our ability to capitalise on the strong customer demand for Nintendo Switch, the continued adoption of PlayStation hardware and VR sales, the launch of Microsoft’s Xbox One X and a more appealing line-up of new software titles compared to the same time last year.”

In other news Game Digital advised that its cost-stripping programme continued to make inroads, the business making further savings in Britain ahead of its previously-estimated full year savings of around £4m.  And it added: “Further cost saving initiatives [are] under way to offset the margin impact of the sales mix change in the UK Retail business.” Margins ducked in the 23-week period thanks to growing sales of lower-margin hardware like Nintendo’s Switch console.

Still too risky

However, I am less than convinced by the company’s ability to stage a sustained sales rebound as the structural shift in the video games industry from traditional retailers like Game Digital to online platforms steadily heats up.

This attack culminated in Game Digital finally slipping into the red last year (it chalked up losses per share of 3.8p per share in the 12 months ending July 2017).

Although City analysts are predicting the fruits of its recovery plan to help losses narrow to 1.2p in fiscal 2018. In my opinion, deteriorating consumer confidence and the aforementioned impact of digital gaming suggest that Game Digital may find it a struggle to turn around its battered bottom line.

Glistening giant

Given the choice, I would be far happier to stash the cash in Centamin as the scope for extended geopolitical turmoil in 2018 and later, added to rising chatter that stock markets are looking a tad overcooked, looks likely keeps precious metals well bought.

Indeed, latest data from the World Gold Council this week again showed how the store-of-value assets remain popular in the current climate, with global gold ETF holdings jumping 8.4% during 2017.

With Centamin also lighting a fire under production rates, City analysts are expecting the mining giant to bounce from a predicted 46% earnings fall in 2017 with a 14% advance in the following period.  And I for one am expecting profits to continue booming long into the future, thus making the business an attractive selection despite its slightly-heavy forward P/E ratio of 16.9 times.

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.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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 us better investors.

More on Investing Articles

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

£10,000 invested in Greggs shares 5 years ago is now worth…

Investors flocked to Greggs shares for an appealing mix of growth prospects and passive income following the pandemic. But things…

Read more »

Bearded man writing on notepad in front of computer
Investing Articles

I’m getting nervous about the Lloyds share price

The Lloyds share price has soared by more than 50% over the past 12 month, easily beating the wider FTSE…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

Meta stock is up 17 days in a row! Time to buy this record-setter?

Our writer wonders whether now is the time for him to add Meta stock to his ISA portfolio after its…

Read more »

Man putting his card into an ATM machine while his son sits in a stroller beside him.
Investing Articles

4 good reasons why I’m avoiding cheap Lloyds shares like the plague!

Lloyds shares look dirt cheap based on earnings, dividends, AND asset values. But is the FTSE 100 bank a risk…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

31% revenue growth! This top growth stock just keeps powering on

Shopify (NYSE:SHOP) smashed it in the fourth quarter, wrapping up an outstanding 2024. But is this growth stock worth considering…

Read more »

Investing Articles

Down 23% in a year, is Frasers Group a FTSE 250 bargain?

Christopher Ruane explains why he is taking the Buffett approach by sticking to what he comfortably understands. That does not…

Read more »

The words "what's your plan for retirement" written on chalkboard on pavement somewhere in London
Investing Articles

How much would someone need to invest in the stock market to retire and live off passive income?

Christopher Ruane explains some approaches and potential pitfalls of putting money in the stock market to try and retire early…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Growth Shares

This little-known technology company is now the 6th-largest business in the FTSE 100

Over the last few years, this under-the-radar technology business has quietly become one of the largest companies in the FTSE…

Read more »