The great thing about a Self-Invested Personal Pension (SIPP) is that the government tops it up after a contribution’s been made. Once this tax relief arrives a few weeks later, it can also be invested!
To take advantage of this, I plan to add some money to my SIPP in February to buy the following share.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.
Massive pullback
The stock is Ferrari (NYSE:RACE), which has fallen 34% since hitting a July peak. This is one of its largest downturns since listing in 2015.
There are two things worrying investors. First, President Trump recently threatened a new round of tariffs on Europe, before walking them back. As Ferrari makes its cars in Italy, this has caused a bit of uncertainty (the stock’s down 8% year to date).
The major concern though relates to the luxury carmaker’s Capital Markets Day in October. Back then, management said it was targeting revenue of at least €9bn by 2030, implying a compounded annual growth rate of around 5%.
Operating profit’s expected to grow at 6% over this time, reaching €2.75bn. While that would translate into an incredible margin of at least 30.5% — unheard of in the automotive industry — the growth rate disappointed the market. It’s well below Ferrari’s historical average.
Compounding matters was the stock’s premium valuation. Put simply, investors have become less willing to pay up for slowing growth.
So why am I bullish?
Having followed Ferrari as a shareholder for many years now, my strong suspicion here is that management’s being ultra-cautious with this guidance. Three things make me believe this.
One is that Ferrari has a history of setting conservative targets only to crush them. For example, the firm’s on track to hit, or exceed, its previous 2026 profitability goals – set back in 2022 – a full year early.
Second, this plan covers a five-year period (2026-2030). When setting targets half a decade out, especially given the volatile geopolitical environment, management said it’s prudent to bake in some conservatism.
Finally, there’s no indication that ultra-wealthy customers are turning away from the brand. Quite the opposite. All 799 units of the limited-edition F80 immediately sold out, even with a base price of around €3.6m a car. The overall order book extends well into 2027.
All this leads me to believe that Ferrari will beat these targets, which I think will become obvious to investors before 2030. In the meantime, the company’s begun repurchasing shares as part of a five-year €3.5bn buyback plan.
A high-quality compounder
Of course, I could be wrong. A breakdown in trading relations between the US and Europe could impact earnings and sentiment. Meanwhile, the stock’s trading at 29 times forward earnings, so it still isn’t conventionally cheap. This adds another element of risk.
However, Ferrari’s a high-quality compounder that I want to remain invested in long term. It has industry-leading margins, a durable luxury brand, loyal super-rich clients, and truly extraordinary pricing power.
Finally, it’s worth noting that analysts have a target price of $453, which is 35% higher than the current level. This is a rare mismatch.
As such, I intend to take advantage of the 34% dip in February and I reckon long-term investors should also consider doing so.
