Over the past six months, as the global economy has started to recover from the pandemic, many stocks and shares have risen in value substantially.
However, some equities have lagged the market. And it’s these businesses I plan to concentrate my efforts on buying during the next few weeks.
I reckon that as these firms report their half-year results and issue future trading updates, the market will revalue the businesses. That’s assuming, of course, the updates are positive.
As such, here are three stocks and shares I’d buy in August.
Companies on offer
The first on my list is the Bisto to Mr Kipling owner Premier Foods (LSE: PFD). While shares in this company have added around 30% over the past year, I think the stock remains undervalued.
According to a trading update published today, sales across the group for the 13 weeks ended 3 July were 6.3% above 2019 levels. This was at the top of expectations for the period.
International sales are also growing strongly. Global sales increased 17% compared to 2019 levels in the period.
Based on these numbers, management now expects pre-tax profits for the year to come in at the top end of expectations. With this growth coming through, I reckon the stock’s current price-to-earnings (P/E) multiple of 9.4 undervalues the business. This is why I’d add the firm to my basket of stocks and shares.
Key risks and challenges the business might face are rising costs, which could weigh on profit margins. Competitive pressures may also hurt growth and lead the firm to spend more on marketing. Both of these factors could hurt profit growth.
Another company I’d buy for my portfolio of stocks and shares in August is Lancashire Holdings (LSE: LRE).
Rates are rising across the insurance industry, and many companies in the sector are reporting earnings growth as a result.
Unfortunately, Lancashire’s share price doesn’t reflect this. The stock’s fallen nearly 15% over the past year.
I think investor sentiment towards the business could change when it publishes trading updates later in the year. With the rest of the sector experiencing growth, I reckon the company will report expanding earnings as well.
That said, we’re currently in the middle of the Atlantic hurricane season. A large hurricane could lead to significant losses for the insurance industry. This would almost certainly reduce Lancashire’s profits for the year. This is one risk I’ll keep my eye on.
Trading stocks and shares
The final company I would buy for my portfolio is stockbroker Numis (LSE: NUM). Shares in this business have increased by around 25% over the past year.
However, with revenue and underlying operating profit increasing 83% and 325% respectively in the first half of 2021, it looks as if the stock is lagging the group’s fundamental performance.
The company has already said it believes this performance will continue for the rest of the year. As such, I think it could only be a matter of time before the market gives the enterprise a higher valuation.
Still, Numis’ performance is tied to the general performance of the overall stock market. If volatility returns to stocks and shares, profits could fall. In this situation, the valuation of the business is likely to decline.
Rupert Hargreaves owns shares of Lancashire Holdings. 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.