I’m looking for top shares to buy now for the next bull market. And here are two on my watch list.
Branded luxury goods
Branded luxury goods company Burberry CLSE: BRBY) sells its products around the world.
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And it does so online and via stores, outlets, concessions and franchisees in department stores. On top of that, the business licenses the manufacture and distribution of some products bearing the Burberry trademark to third parties.
There’s been some financial progress over the past few years. Since 2016, net profit has delivered average growth of just under 4% a year. And the compound annual growth rate of operating cash flow is running just below 10%.
The directors have been pushing up the shareholder dividend a little each year to reflect the progress. And the only blip in the recent dividend record occurred in 2020 when coronavirus caused a reduction. Nevertheless, the dividend has been growing at an average of just under 3% a year.
Burberry headed its third-quarter trading statement in January with the statement “momentum builds”. And the directors said full-price sales grew at a double-digit percentage compared with two years previously, before the pandemic arrived. And the directors reckon the firm is making progress attracting new, younger customers to the brand.
The outlook is positive. And City analysts expect earnings to advance by just under 12% in the trading year to March 2023. Meanwhile, with the share price near 1,951p, the forward-looking price-to-earnings ratio is around 19 when set against that forecast.
The valuation isn’t ‘bargain basement’. And that adds some risk for investors because the business could miss its forecasts causing the share price to fall. However, growth is on the agenda, the brand is strong and the company has a strong balance sheet. I like this one right now.
Food ingredients company Tate & Lyle (LSE: TATE) delivered an upbeat third-quarter trading update in February. And today I’m looking at the business at an exciting point in its development.
The firm is on track to complete the separation of its operations into two businesses at the end of March. One will be Tate & Lyle focused on food and beverage solutions. And the other will be ‘NewCo’ specialising in plant-based products for the food and industrial markets.
Tate & Lyle will joint-own NewCo with a company called KPS Capital partners. And TATE expects to earn gross cash proceeds of around $1.3bn from the deal. After that, it will likely benefit from a stream of dividends generated from its 50% stake in the new enterprise.
Chief executive Nick Hampton said Tate & Lyle has re-positioned itself as a “growth-focused”, global food and beverage solutions business serving “faster growing” markets. And he sees “significant” opportunities ahead.
However, City analysts’ estimate lacklustre growth in earnings next year. And there is some risk the company could fall short of its ambitions. If that happens, the forward-looking earnings multiple running near 17 could become problematic and the share price could fall.
Nevertheless, the balance sheet is strong. And I’d be prepared to embrace the risks and hold the stock while the company aims for growth ahead.