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2 stocks I’m no longer sceptical about

The stock market is constantly changing and a company can be impressing investors one day and the next people don’t want to touch it with a bargepole. However, it can work both ways and some stocks that I was once sceptical of investing in have managed to change my mind with their recent successes.

Investing in volatile markets will always have a high risk/reward ratio and it’s worth looking in-depth into a company before deciding to invest.

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Oil prices

Tullow Oil (LSE: TLW) is a multinational oil and gas company founded in the UK. I have previously been nervous about putting my money into oil companies just because of how volatile the market can be. However, Tullow has changed my mind. The company’s share price is obviously impacted by geopolitical risks and trade war tensions. But having said this, the share price has risen by almost 2% in the past week despite the turbulent market.

Why might this be? Tullow Oil has a reassuring strategy in place that it’s actually delivering on as the company aims to increase production and reduce debt. Furthermore, it’s aiming to be the most sustainable leading oil company in Africa by 2030, showing how it’s developing with the times. It appears that this strategy is working well for the business with an impressive $450m free cash flow prediction for this year. It gets better as the company recently said: “This figure is expected to increase to around $650m following completion of the Uganda farm-down.”

I can see Tullow becoming financially stronger in the long term thanks to the new strategy and with a P/E ratio of around 10, I believe that it offers investors a margin of safety. There’s always going to be a risk when investing in oil stocks, but as the price of oil increases, I see great growth potential for the business.

Thirsty work

Severn Trent (LSE: SVT) is a large water company that I was sceptical of because it’s so underrated, I worried the share price would remain stagnant. Also, with water utility companies facing an uncertain future, I was unsure whether it was worth it. However, the company has proved itself to be an established dividend provider with a strong track record. It has been consistently paying dividends for 10 years, increasing from 41.05p per share in 2009 to 51.92p per share last year. The company is now paying investors a very healthy 5% yield. Furthermore, just over the past year, the company has increased its net income by 32%. 

I see the stock as a worthy long-term investment. The company continuously pays out higher dividends and with a P/E ratio of around 14, I believe that it’s cheap to buy at the moment. Maybe it’s not cheap by universal standards, but this P/E is reassuringly low for the water industry. Severn Trent is also expecting revenue from its water and sewage business to rise to £1.64bn this financial year from £1.58bn last year. This steady and consistent increase in revenue makes me feel confident about investing in this stock for the long term.

A Growth Gem

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fional has no position in any of the shares mentioned. 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.