Assuming the forecasts of analysts prove to be accurate, two of the shares in my Self-Invested Personal Pension (SIPP) will increase in value by a combined 24.1% in 2026. This assumes an equal investment in each.
But is this too good to be true?
Falling out of fashion
Like most operating in the luxury goods market, Burberry Group’s (LSE:BRBY) suffering from a difficult retail environment caused by global economic uncertainty.
Despite this, analysts have set a 12-month target that’s 14.9% higher than the group’s current (12 December) share price. I suspect this positive outlook is based on its most recent trading update, which suggested that things could be on the turn or, at the very least, that the worst is now behind it.
But a recovery isn’t guaranteed. There are mixed messages about the performance of the Chinese economy, a key market for the group. Also, operating over 400 stores around the world is logistically challenging.
However, the icon’s latest collection appears to have been well received by journalists and other industry observers. The group also appears to be gaining traction on social media. And we have to remember that Burberry’s brand has proven to be remarkably resilient in recent years. It’s survived far more difficult times before. This gives me confidence that it will emerge from the present downturn in good shape. For this reason, I think it’s one for patient long-term investors to consider.
Drill, baby, drill!
The performance of the Harbour Energy (LSE:HBR) share price has been a huge disappointment to me. It’s suffered on the back of an extraordinarily high tax rate of 78% levied on its North Sea profit. To compensate, in 2024, it acquired various oil and gas fields in other parts of the world, where taxes are lower. The deal also helped reduce its operating cost per barrel.
But the trouble with energy stocks is that it’s impossible to know with any great accuracy what the oil and gas price will be from one period to another. This means earnings can be volatile. However, even with energy prices at their current relatively low levels, Harbour Energy’s directors are forecasting free cash flow of $1bn in 2025. This means the group should be able to keep to its dividend policy of returning $455m to shareholders. If it can, it implies an impressive current yield of 9.8%.
Such high returns should be treated with caution. But in this case, I think it’s the consequence of an undervalued share price rather than concerns about the sustainability of the group’s dividend.
Of comfort to me, analysts appear to agree with this assessment. They have a 12-month share price target that’s 33.3% higher than today’s price. On balance, I think it’s worthy of consideration.
Yes please!
If these two could increase in value by 24.1% by this time next year, I’d be a very happy investor. After all, a SIPP with an initial lump sum of £10,000 would grow to over £2.2m after 25 years, if it could achieve a growth rate like this. This is unlikely which is why I’m not complacent. It also explains why I shall continue to be on the lookout for other undervalued stocks, just in case the analysts are wrong about Burberry and Harbour Energy.
