Forget the FTSE 100! My top tip in 2019 has risen by 140%

Roland Head revisits three top picks that have smashed the FTSE 100 (INDEXFTSE: UKX) this year.

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Back in January, I was seeing a lot of value in the stock market. Fast forward 11 months and the FTSE 100 is up by about 10%. The smaller FTSE 250 has gained 23%. However, my top pick from the mid-cap index has risen by a whopping 140%.

Here, I’m going to take a look at three of my top winners from 2019. Why have they done so well — and should you keep buying these shares today?

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Make money from PETS

Pets at Home Group (LSE: PETS) was limping at the start of the year. Profits were falling as the company was forced to cut its prices to compete with big online-only retailers. The group’s vet division was also suffering growing pains.

However, the business remained profitable and had annual sales of nearly £1bn. That’s big enough to benefit from some economies of scale.

Back in January, I thought the shares looked cheap on nine times forecast earnings. I was right. The PETS share price has risen by about 140% since then. The company has upgraded its full-year guidance twice and profits are rising.

Would I still buy? Pets at Home now trades on about 20 times forecast earnings and the dividend yield has dropped to 2.6%. Despite this, earnings are expected to rise by just 4% next year. The shares are starting to look pricey to me. I wouldn’t buy at this level.

Dun shopping

When I tipped home furnishings retailer Dunelm Group (LSE: DNLM) in January, I noted that it was “one of the most profitable firms of its kind” and looked good value.

Dunelm stock has since risen by 70% as the firm has traded ahead of market expectations and delivered a 25% increase in annual profits. Shareholders have benefited from a 32p per share special dividend, in addition to a 6% hike to the ordinary dividend.

Like Pets at Home, Dunelm now looks quite pricey — the shares trade on about 21 times 2020 forecast earnings. But this company enjoys higher profit margins than PETS and generated a return on capital employed of more than 45% last year. This outstanding figure suggests to me this business may deserve a higher valuation.

I wouldn’t rush to buy DNLM today. But if the stock fell back towards 850p, then I’d start to get interested. In the meantime, I rate the shares as a hold.

I’ve bought more of this stock

FTSE 250 online financial trading firm IG Group Holdings (LSE: IGG) was hit by new regulatory restrictions last year. But the company has the largest market share in this sector, with many high-value professional clients who are exempt from the new rules.

IG is fighting back with new products and a renewed focus on its core clients. The firm’s latest results suggest to me performance has stabilised and should soon start to improve.

Analysts’ forecasts suggest profits will rise by about 12% next year, putting the shares on a forecast price/earnings ratio of 15, with a 6.5% dividend yield.

The IG Group share price has risen by more than 30% since I chose it as my top pick for May. But this company reported a 39% operating margin last year and has never cut its dividend. The shares don’t look expensive to me. I continue to rate IG as a buy.

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Roland Head owns shares of IG Group Holdings. 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.

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