2018 was a tough year for investors and when the whole market falls it can be easy to think investing isn’t a way to increase wealth. However, thinking longer term, investing in shares is still a great way for investors to grow their hard-earned cash into something more and with the FTSE 100 having fallen by around 12% in 2018, it means 2019 could see some shares bouncing back strongly.
Coming back into fashion
Ted Baker (LSE: TED) is one share that was hit particularly hard last year as the price fell around 44%. The combination of a March warning about trading conditions and then, later in the year, allegations against the founder combined to make the company amongst the worst performers of 2018. The distraction and adverse publicity played a role in December’s downbeat trading update which showed that in the 16 weeks to December 1, group revenue slipped to 0.2%. The previous year had seen a 7.3% rise.
2019 has started better for the FTSE 250 company and the shares have bounced back from five-year lows, helped by figures earlier this month which buoyed investors. The figures showed sales up over the five-week Christmas trading period with retail sales growing 12.2% while e-commerce sales rose by 18.7%. On top of this good news, the P/E ratio has dropped to around 14 and the company offers a dividend yield of around 3.3%.
Ted Baker’s share price has undoubtedly suffered due to worries about the state of UK retail (as well as company-specific issues). The company, however, is a global brand and not a purely UK-focused one so deserves a greater premium than that which it currently has. If it can quickly resolve the issues with its founder’s behaviour and show growth in both its retail and wholesale divisions, the shares should improve in 2019.
Another solid company that’s fallen
DS Smith (LSE: SMDS) investors were also punished particularly harshly during 2018 with the share price falling just short of 26%. But the shares’ valuation looks even more attractive than Ted Baker’s. The yield is 4.5%, while the P/E of around 10 means the shares are good value. Results released in December should give investors reason to be optimistic. DS Smith grew profits 27% in the first half of the year and the company revealed it could potentially sell its plastics division.
The share price dropped most noticeably in the last part of the year so there is potential for it to underperform for a while yet, but a combination of the valuation, acquisitions and improving business performance should mean it gathers pace by year-end. In the last three months of 2018, while the share price was dropping, the company was releasing positive news such as the profit growth highlighted above, and eventually, investors will have to sit up and take notice of what is actually a growing, highly profitable company. When that happens the share price should start to bounce back.
In fact, if the market is favourable in 2019, I expect Ted Baker and DS Smith to perform particularly well due to the combination of their current lower valuations and attractive business models. And even if 2019 is another tough year for investors then longer term, both companies are still well positioned to deliver growth while investors can carry on buying the shares at lower prices.
