Some investors love recovery stocks. These are beleaguered companies that have been hammered by the stock market, but can suddenly soar when sentiment changes, giving brave investors who bought at the bottom an immediate boost. The following two have been through a rough time lately, but both are showing signs of life today.
IG Group Holdings
Spread betting and CFD trading platform IG Group Holdings (LSE: IGG) is up 10% this morning after forecasting a return to revenue growth in full-year 2020.
Today’s first quarter results showed revenues flat at £129.1m, compared to the same period last year, but that’s more encouraging than it looks. The IG share price was hammered by tough new European Securities and Markets Authority (ESMA) restrictions on the trading of CFDs and binary options, designed to protect the unwary. Today’s Q1 revenue figure was 11% higher than the quarterly average after the rules came and and management said this demonstrates its ability “to deliver revenue growth in a more restrictive regulatory environment.”
Management is now targeting annual revenue growth of 3-5% over the medium term in its core markets, which has lifted spirits. I’m glad to say I recently tipped the FTSE 250 stock to fight its way back, saying its generous 7% yield should give investors ample reward while they wait.
Would I buy after today’s price surge? IG isn’t exactly a bargain, trading at a forecast 14.9 times earnings. But the forward yield is still a whopper at 7.5%, albeit with cover of just 0.9. The platform tends to benefit from volatile stock markets, which tempts customers to trade, and we can expect that situation to continue over the next few years. This stock could therefore offer protection from any stock market storms ahead of us.
IG’s worries are nothing compared to construction and infrastructure services company Kier Group (LSE: KIE), which has been in mortal peril with its share price collapsing 90% in the last year. It’s another of Neil Woodford’s disastrous stock picks, and some even speculate its share price could ultimately head for zero.
It is up 2.5% today to 137p, despite reporting a £245m loss in its full-year 2019 results, down from a £106m profit a year earlier. Earnings per share fell from 89.3p to a loss of 158.5p. On a more positive note, revenues slipped only slightly, from £2.24bn to £4.122bn.
Chief executive Andrew Davies joined in April, several months after the group’s £250m rights issue, to strengthen the balance sheet, and said the firm was building firm foundations after “a difficult year, resulting in a disappointing financial performance.” He highlighted a new management team and a strong order book, and said this reflects the strength of the underlying business.
The sale of homebuilding business Kier Living is progressing well as the group reshapes itself to reduce indebtedness and “restore Kier to robust financial health.”
For those who can’t resist a bargain, the Kier Group share price is trading at an incredibly cheap forward valuation of 2.9 times earnings. But wafer-thin operating margins of just 2.2% demonstrates the challenge here. It remains highly risky but, as ever, those who want to enjoy the full force of any recovery need to get in before it happens, rather than afterwards.
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Harvey Jones 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.