3 contrarian stocks I’m watching in November

October was a rough month for the markets but there are plenty of opportunities about, like these three out-of-favour shares. They are only on my watchlist for now, but could move higher.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Online gambling software provider Playtech (LSE:PTEC) has had a very bad year. It released a first profit warning last November and a second in July, resulting in a share price drop of over 50%. However if there are no further disappointments then the company now looks very cheap to me. The price-to-earnings ratio (P/E) is less than 8 and it pays a handsome dividend of 7.3%. Anyone who has read one of my articles before will know that I use P/E as the de facto price of a share (assuming it is profitable). I then measure the quality and growth prospects of a company against this ratio to determine if I think it is good value.

A trading update is due on Monday and if positive, then I expect there to be a re-rating of the shares over a sustained period of time. I still consider online gambling a growth industry and Playtech is currently the market leader in the provision of software. This share shows how dangerous it can be to continue to hold a company after a profit warning. It is often best to get out early and wait to see how things shape up over the long term before getting back in. We should have a better outlook on Monday.

Long-term opportunity

AIM-listed electronic component manufacturer XP Power (LSE:XPP) has grown its revenue and net profit for the past seven years. It pays a good dividend of 3.5%, which it has consistently increased, and following a significant re-rating of the share price it now trades on a P/E of just 13.1, which I see as low for a growth stock.

So why has the share price fallen more than 30% since July? XP Power is based in Singapore, manufactures in China and Vietnam and sells mainly in the US, so it is very vulnerable to the current trade war situation. And there is a concern that growth is slowing with sales in Q4 lower than in Q3, the company stating that “growth has moderated slightly.

The big drop in price seems like to me an overreaction and I feel that this share could be a good buy-and-hold investment. The problem is the price is still falling and if results confirm slower growth this share could still sink lower. I’d wait and see.

Market opportunity

Last month I wrote about how housebuilders have become undervalued even though healthy industry growth has defied market sentiment. While I am still concerned about the potential impact of Brexit, most housebuilders are releasing positive updates. Bovis Homes (LSE:BVS) is releasing a trading statement next Thursday which could further confirm the health of the sector (or might not).

Most housebuilders look cheap to me because of investor caution and Bovis is no exception with a P/E ratio of 9.2 and an enormous dividend of 10.2%. Broker forecasts have been repeatedly raised this year and I expect there to be a healthy pipeline of new projects with the extension of the Help To Buy scheme in the autumn budget. If results continue to exceed expectations then we could see share price increases across the board for housebuilders. There is certainly an attractive risk-to-reward profile for Bovis at this price, but I’m staying on the sidelines until I see some price momentum begin to return. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Robert Faulkner has no position in any of the shares mentioned. The Motley Fool UK has recommended XP Power. 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.

More on Investing Articles

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »