As investors, we’re always looking for the next big thing. Certainly, this can be a new product, a dirt cheap stock, or an industry that is set to offer superb growth prospects over the medium to long term. However, sometimes the next big thing can be staring at us right in the face: companies that we are already familiar with, but which are undergoing major change or transitioning to a new market, product line or even industry. As such, it can pay to revisit stocks that may have been rejected as potential investments in the past but, following significant change,…
As investors, we’re always looking for the next big thing. Certainly, this can be a new product, a dirt cheap stock, or an industry that is set to offer superb growth prospects over the medium to long term. However, sometimes the next big thing can be staring at us right in the face: companies that we are already familiar with, but which are undergoing major change or transitioning to a new market, product line or even industry.
As such, it can pay to revisit stocks that may have been rejected as potential investments in the past but, following significant change, could prove to be excellent long term buys.
A New Era
One such company is BT (LSE: BT-A). Clearly, it is best known as a provider of landline and broadband and, as such, may be viewed by many investors as a rather dull proposition. After all, neither of those spaces are renowned for being particularly high growth areas, with perhaps the exception of super-fast broadband in recent years.
However, BT is undergoing a major change as a business, with it embracing the new buzz term of ‘quad play’ (landline, broadband, pay-tv and mobile from one provider) and, in the long run, this could set the company up for a period of much more appealing growth.
Certainly, it will take time and, in the short run, it is likely to mean increased costs and uncertainty as BT integrates its new mobile network and bids on vastly expensive (but potentially alluring) sports rights. However, with a price to earnings (P/E) ratio of just 14.9 (versus 16) for the FTSE 100, there is scope for an upward rerating as well as improved profitability moving forward.
While BT is adding new products to its line-up, Blinkx (LSE: BLNX) is transitioning from one product to another. In fact, it is moving away from desktop and towards mobile, with its considerable cash pile and lack of debt allowing this process to take place at a much faster pace as it makes multiple acquisitions. In addition, Blinkx is reorganising its business and simplifying its offering, which makes sense and should create greater clarity for its customers and, over the medium to long term, this should generate improved levels of profitability.
Of course, Blinkx made a loss last year, and is forecast to do the same in each of the next two years. As such, investor sentiment may be held back somewhat in the short to medium term, but with a sound strategy and a strong balance sheet, it could be worth buying Blinkx for its long term turnaround potential.
A New Business?
An even bigger change is currently taking place at Quindell (LSE: QPP). It has sold off its largest division; the professional services division, and plans to return the majority of the proceeds to shareholders. As such, it could be argued that it is akin to a new business, with it set to focus on its technology division and develop a new long term strategy. And, with a new management team at the helm, investor sentiment in Quindell could pick up — even after its shares have more than trebled since the turn of the year.
The problem for investors, though, is that unlike BT and Blinkx Quindell’s long term strategy is not yet clear. Therefore, it seems prudent to wait for further developments on this front before buying a slice of it, although it remains a company that is well worth keeping an eye on.
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Peter Stephens does not own shares in any of the companies mentioned