Quite often, stock market investors sell their winners and add to their losers in an effort to rebalance their portfolios. That’s not what I do, however. I prefer to add to my winners and cut my losers because, as legendary fund manager Peter Lynch once said: “Selling your winners and holding your losers is like cutting the flowers and watering the weeds.”
Here are two UK shares that have been winners for investors recently. I’d buy both today, as I believe they have plenty of room to run.
New all-time highs
Let’s start with Calnex Solutions (LSE: CLX). It specialises in telecommunications network-testing solutions. Recently, its share price hit new highs. Yet I think this is just the start of the growth story.
The rollout of 5G network technology will require an enormous amount of testing in the years ahead. For networks to work seamlessly (and handle new technologies such as autonomous vehicles), they’ll need rigorous testing. That’s where Calnex comes in. Its solutions help network carriers prove that new systems operate effectively, and conform to strict international standards.
A recent trading update revealed that the company has a lot of momentum right now. Not only did it say the strong levels of trading in the first six months of FY2022 (its year ends 31 March) had continued, but it also said it begins FY2023 with a record order book across all product lines. As a result of the order book strength, it said that revenue and operating profit for FY2023 would be “materially ahead” of market expectations.
In terms of risks, supply-chain challenges are one to consider. Share price volatility is another. This is a small company with a market-cap of just £130m. So its share price is likely to swing around a bit.
Overall, I’m excited about the potential here. With the stock trading at just 26 times this year’s expected earnings, I see it as a strong buy.
Another stock that I believe has a lot of growth potential is Cerillion (LSE: CER). It’s a small British technology company that provides billing, charging, and customer relationship management solutions, predominantly to telecommunication companies. Its share price is up more than 50% over the last year. However, I see the potential for significant upside from here on.
It’s been a while since Cerillion provided investors with a trading update yet in the last one, posted in November, management was very confident in relation to the prospects for this financial year.
“With a record back-order book and strong new business pipeline, we remain confident of continued momentum,” said CEO Louis Hall.
Analysts expect revenue of £31.2m for the year ending 30 September for growth of about 20% year-on-year.
It’s worth noting that this year Cerillion has been positively recognised in two Gartner industry reports and won the ‘Best Performing Company – Business & Consumer Software’ award at the annual Megabuyte Quoted25 awards event. That celebrates the best-performing technology companies in the UK. This recognition suggests it’s doing something right.
Of course, Cerillion shares could get caught up in another tech sector sell-off. I expect tech shares to be volatile this year interest rates rise. Being a small company adds to the volatility.
However, with the stock at just 25 times this year’s forecast earnings, I think the risk/reward proposition here is very attractive.