Even though 2017 is only a few months old, it is already proving to be one of the most profitable years on record for equity investors.
Improving economic data from Europe, the UK, and the US has offset concerns about what impact President Trump will have on global markets. And unless the billionaire unveils a dramatic U-turn in economic policy promises during the next few weeks, it looks as if equities will continue to head higher throughout March.
Shares in Ferrexpo (LSE: FXPO) should continue to benefit from this trend. Over the past six months, shares in the Ukrainian iron ore producer have thrashed the FTSE 100 rising 137% compared to the index’s gain of just 6%.
Improving sentiment
Ferrexpo has benefitted from improving market sentiment towards miners and improving economic data that has sent the price of iron ore steadily higher.
Thanks to management’s focus on quality over quantity, Ferrexpo has been able to improve earnings and profitability by producing iron ore pellets with a higher iron ore percentage, which sell for more than the market average. This strategy has enabled the group to, for the most part, navigate the mining industry’s cyclical downturn. Pre-tax profits fell to $25m in 2015, but the group remained in the black. Last year, according to a trading update issued at the beginning of January, the firm generated $35m of cash and retired $196m of debt.
For the year ending 31 December 2016, City analysts are forecasting earnings per share growth of 42% and pre-tax profits of £188m, up an amazing 840% year-on-year. For 2017 analysts are expecting earnings per share to grow a further 34% to 36.7p indicating a forward P/E multiple of 4.2. This valuation suggests that even after Ferrexpo’s epic run over the past six months, there could be further gains to come.
Undervalued growth
Shares in Fenner (LSE: FENR) also look set to continue to reward shareholders over the next few weeks. Over the past six months, shares in the group have gained 67% excluding dividends taking gains over the previous 12 months to 123%. However, over the last 30 days Fenner has slumped 13%. But after this pause, investors could be ready to push the shares higher once again.
Pre-tax profits have collapsed from a peak of 36.1p at the end of 2012 to 8.4p for 2016. This year, City analysts are expecting the firm to report earnings per share of 12.5p up 49% year-on-year. Further growth is planned for 2018 with earnings per share growth of 29% pencilled-in. Based on these estimates, shares in Fenner are trading at a forward P/E of 21.8, which may seem expensive, but when you consider the firm’s explosive earnings growth rate the shares look cheap as they trade at a PEG ratio of 0.4. For some investors, the temptation to buy shares in this undervalued growth stock could be too hard to pass up.
