With my first £1k, I’d buy this growth stock but steer clear of this disaster

Jon Smith highlights an unusual growth stock that he feels could do very well, while staying away from a stock that’s down 57% over the past year.

| More on:
Chalkboard representation of risk versus reward on a pair of scales

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

If I was starting off with £1,000 to invest in the stock market, I’d split it up between half a dozen ideas. My main focus would be on finding some great growth stocks that I can hold for hopefully large future gains. Yet as important as finding the right stocks is, it’s also key for me to make sure I avoid some traps. Here’s what I mean.

The push to go green

Let’s start with one company that I’d include in my initial portfolio. FirstGroup (LSE:FGP) is a leading private sector provider of public transport. It runs bus and train connections, including brands such as Avanti West Coast and GWR.

Over the past year, the stock has soared by 79%. Even though the sector might seem stagnant, the business is pushing for growth and higher profits. This can partly be achieved with the pivot to going green. Late last year it announced a 50/50 venture with Hitachi to help make and buy up to 1,000 electric bus batteries.

Although this is a multi-year strategy push, it is ultimately expected to add several million to bottom line profits by 2026. I think buying now for the years ahead could be a smart play, as the share price should track the profits in heading higher.

As a risk, the ongoing public sector strikes do present a problem. The disruption and ultimately lost revenue that can result from these strikes is painful for the business. As we currently stand, more strikes are due for April.

Not for me

A company that I’d stay away from is the Watches of Switzerland Group (LSE:WOSG). The stock is down 57% over the past year. I don’t want to get caught up in thinking this is a gem to snap up.

The stock has dropped due to poor results over the past year. This was further compounded in January, when the business cut the forecasted revenue for the full year. Instead of the previous estimation of £1.65bn-£1.70bn, it said it now expected to be between £1.53bn and £1.55bn. This is quite a steep cut.

The Q3 results that came out last month commented that the firm was experiencing “slower demand for luxury discretionary purchases”. When I consider the mood on the ground here in the UK, the fact that we’re in a recession is certainly going to weigh heavy on people thinking about buying a luxury watch.

I struggle to see the business outperforming anytime soon, given the economic outlook and the fact that the firm is rapidly falling out of love with investors.

Of course, I could be wrong here. With a price-to-earnings ratio of 6.45, it certainly flags up as being undervalued on that metric. For long-term value investors, this could be appealing.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jon Smith has no position in any of the shares mentioned. 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.

More on Investing For Beginners

Young black man looking at phone while on the London Overground
Investing Articles

2 under-the-radar UK shares investors should consider snapping up

Two UK shares have caught the eye of our writer. She explains why investors should be taking a closer look…

Read more »

Fans of Warren Buffett taking his photo
Investing For Beginners

Using the Warren Buffett approach, here are 2 British stocks I like

Jon Smith explores two UK stocks he likes and feels Warren Buffett might like too, based on the great man's…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

3 things I’d do now to start buying shares

Christopher Ruane explains three steps he'd take to start buying shares for the very first time, if he'd never invested…

Read more »

Rainbow foil balloon of the number two on pink background
Investing For Beginners

2 under-the-radar FTSE 100 stocks under £2

Jon Smith identifies two FTSE 100 stocks that he believes are getting a lack of attention from some investors but…

Read more »

Middle-aged Caucasian woman deep in thought while looking out of the window
Investing Articles

Should I buy these UK shares for my portfolio?

This Fool has been searching for ways to capitalise on the commodity moves via UK shares. Here’s what he’s watching.

Read more »

A senior group of friends enjoying rowing on the River Derwent
Investing Articles

£9,000 in savings? Here’s a FTSE 100 stock I’d buy to target a £30,652 annual second income!

Our writer highlights one top FTSE 100 share that he thinks could help create a portfolio large enough for a…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 of the best FTSE 100 beginner stocks to consider buying

The Footsie offers people just beginning their investment journey some of the best stocks to buy. Here are two to…

Read more »

Long-term vs short-term investing concept on a staircase
Investing Articles

With no savings, I’d listen to Warren Buffett to aim for long-term wealth

Warren Buffett looks for "1-foot bars" to step over, not "7-foot bars" to jump. Stephen Wright looks at what this…

Read more »