The Motley Fool

One double bagger I’d sell to buy this FTSE 100 star

FTSE 250 firm Coats Group (LSE: COA) is a company I hadn’t heard of until around a year ago, when it began a rapid turnaround that’s seen its shares double in less than one year.

The group is one of the world’s largest industrial thread manufacturers, producing threads for use in products such as clothing, footwear, furniture and the automotive industry.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

It announced another acquisition today, aimed at expanding its range of specialist products. Patrick Yarn Mill specialises in cut-resistant and flame-retardant yarns and generated sales of $36.5m in 2016. Coats will pay $21-25m to acquire the business, dependent on its performance over the next three years.

Buy, sell or hold

I own shares of Coats myself. They’ve been a profitable investment for me over the last eight months. But I think the strong trading and pension settlement which drove the stock’s rapid gains may now be reflected in the group’s share price.

Looking ahead, analysts expect the group to report earnings of 6.2 US cents per share for 2017, a 26% increase on 2016. However, expectations for 2018 are more modest, with City brokers pencilling in earnings growth of just 7.5%. Although acquisitions like today’s deal may help to nudge this total higher, it seems to me that Coats’ growth is now likely to be slow and steady, rather than fast and furious.

With this in mind, I think the stock’s 2018 forecast P/E of 17.2 may be high enough. Next year’s dividend is only expected to provide a yield of 1.7%, well below the 2.7% average for the FTSE 250.

Holding onto this stock could still make sense for committed long-term growth investors, but personally I’m starting to think about taking profits in order to invest in more attractive opportunities elsewhere.

One miner I might buy

Copper mining group Antofagasta (LSE: ANTO) hit a 52-week high of 1,071p earlier this year. But the stock has pulled back by around 10% to just over 900p. In my view this could be an opportunity to buy shares in this Chile-based miner.

Before the mining market crashed in 2015, Antofagasta generated operating margins in excess of 30%. The firm’s mining costs were relatively low and it generated a lot of surplus cash. Although margins fell sharply in 2015, they are already recovering. Over the last 12 months, the group has achieved an operating margin of 19%. I think that further gains are likely over the next year.

Perfect timing

Antofagasta’s historically high margins and strong cash generation enabled the group to make a major acquisition during the mining downturn. Although this deal left the group with net debt of more than $1bn, this has already fallen to around $850m. This looks pretty insignificant to me, given that the firm is expected to report an after-tax profit of $647m for 2017.

The price of copper has risen by around 14% over the last year. Demand is expected to remain strong in the future for this relatively scarce asset.

As the benefits from Antofagasta’s expanding mine assets feed through to the firm’s earnings, I expect significant dividend growth. Trading on a forecast P/E of 17 with a prospective yield of 2.3%, I think the stock offers decent value.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Roland Head owns shares of Coats Group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.