Before we launch into this article, first a disclaimer: we remain long-term investors here at The Motley Fool UK, and strive to hold any stock we buy for a minimum of three to five years. This period of time usually allows the promising underlying trends we view in a company to start to flow through to revenues.
Sometimes, of course, we see share prices spike sooner than expected! And often that’s due to the market rerating the stock. So which have strong potential to surge before the end of the year? Some of our free-site writers have put forward their candidates below…
Anglo American
What it does: Anglo American is a global mining giant, producing a wide rage of metals and minerals, from iron to gold and more.
By Alan Oscroft. In 2023, the Anglo American (LSE:AAL) share price fell a whopping 42%. And the slide has so far carried on into 2024.
Demand for metals and minerals was soaring just a few years ago. But events since then, including a Chinese slowdown, have caused profits in the sector to fall.
Dividend yields from Anglo American are now expected to be in the 4-4.5% range. Shareholders pocketed 10% in 2021.
But this is a cyclical business. And the best time to buy is when the cycle is down, right?
At the moment, forecasts put the price-to-earnings ratio (P/E) at only around nine for the next few years.
There’s little profit growth on the cards just yet, and that has to be the main risk. We still don’t know how weak global demand might become.
But for me, that just makes it one to consider buying now, to hold for the long term.
Alan Oscroft has no position in Anglo American.
Kainos
What it does: Kainos develops digital technology and software solutions for businesses and organisations.
By Mark David Hartley. Kainos (LSE:KNOS) has made a mild recovery after its share price fell 27% in 2023 to a low of £9.00. It’s now selling at around £11 per share, with some estimates putting it at 36% below fair value. At the end of January, Berenberg restarted coverage of Kainos with a buy rating and price target of £13.15. Forecasts from other analysts predict a price increase of between 11%-14% in the next 12 months.
With no debt and liabilities well covered by assets, Kainos has an impressive balance sheet. However, the share price has been volatile lately, and a divisional director at Kainos recently sold £509k worth of shares. At 17.9%, Kainos earnings are forecast to grow slightly slower than the industry average of 18.9%. However, I think it’ll be the UK company’s recent £10m strategic investment into generative AI that will turn this stock’s fortunes around.
Mark David Hartley does not own shares in Kainos.
NextEnergy Solar
What it does: NextEnergy Solar is a fund investing in solar energy generation and assets in the UK.
By Dr James Fox. For me, momentum is actually a rather important factor in choosing stocks. It’s often one of the best indicators of forward performance. However, NextEnergy Solar (LSE:NESF) , which fell over 20% in 2023, is an interesting proposition.
The fund’s net assets value currently stands at £640m, and that’s significantly above the fund’s market capitalisation of £443m. In fact, we’re looking at a discount of 30.3%.
However, things aren’t straightforward as NextEnergy announced in 2023 that it was selling some assets to improve its balance sheet as it swung into the red.
Nonetheless, there’s nothing outstanding about the fundamentals that should suggest such a discount. The stock is one of the biggest and oldest players in the solar industry, with 90 assets in the UK and eight in Italy.
In fact, the discount appears to reflect higher interest rates and not much else. Now could be a great time to lock in a 10.8% dividend yield, and wait for the share price to rise as interest rates fall.
James Fox does not own shares in NextEnergy Solar.
