Weak stock markets can be a gift for investors with a long-term investment horizon in mind.
When share prices fall back on general market weakness, we often have the chance to buy shares in good companies at lower valuations.
If I didn’t own some of their shares already I would buy ARM Holdings (LSE: ARM), Marshalls (LSE: MSLH) and BTG (LSE: BTG) right now.
Growth on track
Chip designer ARM Holdings keeps delivering double-digit growth figures for revenue, profits and the dividend. The firm’s licensing and royalty business model is an efficient way to keep its intellectual property at the heart of the consumer electronics trends of our time – among many other devices, ARM chips are key to Apple’s iPhones, for example.
The firm’s business model is magnificent. ARM doesn’t care which manufacturer takes its technology licences because ARM deals with most hardware companies. That situation, and the ongoing market-leading position that ARM occupies, adds up to an effective trading franchise that competitors find hard to breach.
ARM keeps its economic position well protected by keeping ahead of the curve for technologies and market trends. If you notice a trend or a pattern, you can bet your bottom dollar ARM is already ‘on’ it.
In October, after strong third quarter trading, its chief executive said: “ARM technology is being deployed in an increasingly diverse range of products and markets, from the ubiquitous sensors that will form the Internet of Things, to energy-efficient smart phones, to high-performance servers. With the broadening adoption of ARM technology, we are continuing to invest in developing new products and revenue streams to support long-term growth and returns for shareholders.“
Some balk at paying up for ARM’s high 30s price-to-earnings (P/E) rating, but ARM’s growth trajectory remains straight and true, and the quality of the operation is undeniable. Buying as the share price dips strikes me as a good strategy here.
Operational gearing and growth
All businesses tend to do better as economies improve, but some cyclicals, especially those with high operational gearing, can really see their profits and share prices take off during an economic upturn. One such company is Marshalls. It describes itself as the UK’s leading manufacturer of superior natural stone and innovative concrete hard landscaping products, supplying the construction, home improvement and landscape markets.
The shares have been roaring up and I reckon there’s plenty more to come. The firm sells 66% of its output to the public sector and commercial markets, where turnover was up 11% during the last quarter compared to a year ago. Sales are so buoyant that in December the directors revised-up full-year trading expectations.
Despite the positive news, today’s 327p share price is down from the 377p or so the shares reached during 2015. Now seems a good time to look at the investment opportunity with Marshalls.
Recovering well
At today’s share price of around 636p, BTG is on the way back up from the 520p or so it dropped to towards the end of last year. The specialist healthcare company fell victim to a bout of investor pessimism surrounding the slower-than-expected rollout in the US of Varithena, a new treatment for varicose veins.
However, positive trading announcements from other product areas keep coming, and Varithena itself is delayed, not dead, which the market seems to be realising. BTG ticks all the boxes for quality in my view, so it could be timely to look at the investment potential of this growth firm now, before the shares get back to the 800p-plus they reached at the beginning of last year.
