Looking at the market recovery right now, I see a lot of opportunities to buy cheap UK shares that were too expensive just a few months ago. I love studying market corrections and analysing sectors that show high activity even during bear runs. And right now, the energy sector, mining stocks and anything electric vehicle (EV)-related looks very popular.
Although I refrain from investing based on fads, current market trends seem to be rooted in important recent developments. Renewable energy has become supremely important after Europe’s latest power crisis.
I’ve identified three shares that could supplement the growth of this booming industry right now. These UK shares look primed for growth and could boost my portfolio over the coming years.
All charged up
Electricity bills across the country are surging. Just yesterday, the Confederation of British Industry warned policymakers about the impact of this on local businesses. And I think this points to the larger crisis as we’re caught between an expensive transition to green energy while fending off sky-high crude oil prices.
Greencoat UK Wind’s business model involves investing in wind farms and then selling the generated power back to the grid. This relatively low-risk strategy with 90%+ margins means the company is largely cash positive. In the first half of 2022, it has already generated 2,175GWh of energy with a net cash generation of £328.8m.
This share has risen 22% in the last 12 months. And despite this jump, it’s trading at a price-to-earnings ratio of just 4.6 times. I think this is a very attractive valuation for a firm with strong financials and excellent future prospects.
The next company on my list is Volex, a manufacturer of fibre-optic, copper and battery wires. The company also operates a range of brands in the electronics space that collectively have a global presence. Its main markets are North America (44% of revenue), Asia (23%) and Europe (33%).
Volex recently developed an EV division that manufactures components for the booming industry. These include charging cables, charging stations and storage systems.
In FY22, the company saw revenue growth of 38.6% to US$614.6m. The company expects to generate revenue of $1.2bn by the end of FY27. Thanks to strong recent reports, this share has risen 12.8% in the last six months and is finally showing signs of a bounce-back after falling steadily for months.
Concerns and verdict
While both companies look in relatively strong financial positions, they also come with considerable debt. Given the nature of both businesses, a high percentage of profits are invested back into acquiring assets.
Slowing economies remain a concern for Volex, given its international presence. Its buying power could fall if a recession happens, affecting sales and currency values. Greencoat is currently seeing a premium paid for the energy it sends to the grid. If this stabilises, year-on-year profits could fall, spooking investors.
However, I’m bullish on the European energy sector. I think current changes will prove fruitful in years to come. While traditional oil shares have dominated the energy market, I think a shake-up is under way, which is why I’m considering an investment in these two stocks right now.