Is this a once-in-a-lifetime opportunity to grab shares in this and other battered airlines on the cheap? Or should Foolish investors steer clear? For now, I think the latter. 

Ryanair dives

We knew the figures wouldn’t be pretty but it would seem many in the market are shocked at just how bad they are. 

Today, Ryanair reported a Q1 loss of €185m. Contrast this with the €243m net profit achieved over the same period last year and you get an inkling of just how hard the coronavirus has hit the FTSE 250 stock and its peers. Indeed, the company reflected that the three months to June has been “the most challenging” in its 35-year history. 

No hyperbole here. As a result of lockdowns and travel bans, the number of passengers flying with the company between mid-March and the end of June dived to just 500,000. In the previous year, it was 41.9m. And while Ryanair was able to reduce costs by 85% over the period, this wasn’t enough to offset the 95% dive in revenue to €125m.

As company updates go, you’d struggle to find one as bleak as this. Perhaps the only chink of light was that Ryanair expects to have operated roughly 40% of its normal schedule in July. This will rise to 60% or so in August and “hopefully” 70% in September. It also expects to clear 90% of customer refunds relating to cancelled flights by the end of July. 

Murky outlook

Ryanair’s shares were down 7% this morning. As bad as this may sound for holders, it wasn’t as awful as the falls sustained by listed peers easyJet and Jet2 owner Dart Group. As I type, their share prices have both tumbled 13%.

Since the outlook for Ryanair and, indeed, all airlines is so uncertain, I’m not expecting things to bounce back soon. As the former reflected today, it’s “impossible” to know for how long the coronavirus will be with us and whether a second wave may coincide with the arrival of the annual flu season.

Although it predicts a smaller loss in Q2, Ryanair went on to say it couldn’t provide any guidance on full-year earnings. It did, however, forecast that traffic would drop 60% to just 60m people and that the need for airlines to cut capacity would impact air travel for “at least the next 2 or 3 years.“

Still too risky

Based on today’s news and market reaction, I’ll continue to steer well clear of airlines for a while. The risk/reward payoff simply isn’t worth the trouble in my opinion, even if some UK listed airlines (such as Ryanair) possess relatively solid balance sheets. The Dublin-based business may emerge stronger by growing its network and fleet. But the suggestion it’ll suddenly race ahead of competitors benefitting from financial aid packages from governments is optimistic. 

If negotiating the coronavirus wasn’t bad enough, airlines must also contend with the elephant in the room that’s Brexit. A no-deal scenario could mean even more turbulence for the already-battered industry.

A once-in-a-lifetime opportunity? Not as I see it.

The post The Ryanair share price has tumbled. Is this a once-in-a-lifetime opportunity to buy? appeared first on The Motley Fool UK.

More reading

• Lloyds shares just dipped below the £1 mark!
• £10,000 put in a Cash ISA a decade ago is now worth…
• Are Diageo shares about to pull a Rolls-Royce?
• 1 big question to ask when thinking about what Nvidia stock could be worth
• How has the Scottish Mortgage Investment Trust share price risen 57% in a year?

Paul Summers 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.

Notably, the last couple of months witnessed Dart’s directors buying up the stock. CEO Philip Meeson now holds over 48m shares, more than all its institutional investors put together.

This is an owner-managed company signalling confidence in its forecast position. Is now a good time for us to buy into it too? 

The future of aviation

Investing oracle Warren Buffett famously advised investors to be greedy when others are fearful. And there’s little doubt that many are fearful of airlines right now. However, far from being greedy, Buffett recently dumped his airline stocks, very likely selling low after buying high. This indicates that he could also be fearful for the future of commercial aviation.

He may be right. The coronavirus pandemic is probably the toughest challenge yet for the airline industry. The global enforced shutdown destroyed passenger numbers almost overnight. In addition, fears about another virus peak and upcoming recession mean passenger numbers may take years to recover.

However, according to Dart Group, bookings are staying strong for late summer 2020 and winter 2020/21. Apparently, an “encouraging number” of people are choosing to rebook holidays with Jet2, its low-cost airline, rather than cancel them. It may be that people want to spread their wings after lockdown. If so, the travel industry may recover more quickly than expected.   

Dart Group share price fundamentals

Prior to the stock market crash, the Dart Group share price reflected the company’s noteworthy earnings performance. Revenues and pre-tax profits were trending upwards over the previous five years, and earnings per share increased from 21.3p in 2015 to 96.4p in 2019.

Compared with its competitors, Dart’s financial position is still very strong. Notably, it is the only one of its peers to report a net cash position. In other words, it’s still able to pay its short-term debts from the cash the business generates. By comparison, IAG and easyJet‘s net cash position is negative.

Dart Group’s recent sale of Fowler Welch, its former distribution and logistics business, for £98m will help this further. It may also assist the group in continuing to pay its 1.2% dividend yield to its shareholders. Although this dividend is small, it’s grown year on year since 2015. Something to bear in mind.

On the other hand, rising fuel costs, up to 20% of operating expenses for some airlines, reduced margins across the industry in 2019. Airlines often hedge their fuel costs and Dart Group’s Jet2 is no different. Consequently, the firm is likely to have already locked in higher fuel prices for the next year or two.  

However, no one could have predicted oil prices would tank so badly this year. With many airlines already having hedged their fuel costs, this is good news for companies like BP. Not so much for the Dart Group share price.

On the flip side, there may be future gains from any recent hedging activity. Possibly something for the firm to look forward to. 

Dart Group is a profitable ray of light in an otherwise gloomy aviation sector. It could be a great recovery buy as a riskier investment in an otherwise balanced portfolio. 

The post Dart Group share price: is it time to buy? appeared first on The Motley Fool UK.

More reading

• Trading at 3.5x net income, I think Jet2 could lead the next stock market recovery
• Consider these 2 dirt-cheap stocks to buy if the Straits of Hormuz permanently reopen
• Is this the beginning of a stock market recovery?
• 2 shares that could surge in a stock market recovery…
• Prediction: this FTSE AIM stock could soon be one of the top-rated according to these models

Like an arrow

Aviation services and distribution group Dart (LSE: DTG), the holding company behind consumer facing names such as short-haul airline Jet2.com and operator Jet2holidays, is up a whopping 401% over the past five years, and there has been no slowing down lately with the share price climbing 48% in the past 12 months.

That is remarkable growth, especially when you consider the problems affecting so many in the travel industry, with Thomas Cook going bust, and the likes of Ryanair and easyJet giving investors a bumpy ride.

The Dart share price jumped on Thursday after it published a positive set of interims, showing a 16% rise in revenues to £2.6bn, with operating profit up 3% to £365m.

Sunny outlook

The travel industry is risky, as fuel prices and foreign exchange rates are beyond individual company control, as are climate change and consumer sentiment. However, the £2.5bn FTSE 250-listed group continues to generate plenty of net cash, £512.5m in the first half, a rise of more than 15% year-on-year. Management increased the interim dividend by 7% and there should be scope for plenty of progression, as the current yield of just 0.9% covered eight times by earnings.

My major concern is that recent dramatic earnings growth (39% and 36% in 2018 and 2019 respectively) looks set to slow, with a drop of 5% expected this year. Although earnings are expected to return to growth in the year to 31 March 2021, this is forecast to be a more modest 6%.

Fortunately, and perhaps surprisingly, the stock trades on just 13.7 forward earnings – I expected a pricier valuation given recent dramatic growth rates. Dart is unlikely to soar another 400% in the next five years, that would lift its market to a mighty £12.5bn after all, but it may still continue to fly.

In rude health

Private healthcare provider NMC Health (LSE: NMC) is based in the UAE but listed on London’s FTSE 100, and has posted impressive growth of 341% over the past five years. However, the last 12 months have been poor, with the share price down almost 40%, amid concerns that its acquisition strategy has driven debt to dangerous levels and threatened the balance sheet.

Another concern is that NMC been slow to collect payments, taking almost a hundred days on average to bank customer bills. However, recent results showing 33% revenue growth and 30% bottom-line improvement have eased some worries.

On the table

In August, the stock soared 38% in a day, after two groups tabled competing bids to buy a £1.5bn stake in the company, one of them Chinese investment group Fosun. I am always wary of buying on speculation and with little subsequent news, and NMC Healthcare share price has trailed down.

The £5.16bn group, which operates a network of private hospitals in 19 Gulf countries, looks a little pricey trading at 20.2 times forward earnings. On the other hand, it has posted an impressive five consecutive years of double-digit earnings growth to 2018 (including 55% in 2016), and City analysts are forecasting another 13% this year and 28% next. It’s not often you see that these days.

Again, the yield is low, at 0.9%, but cover at 5.5 times earnings gives scope for progression. The recent share price decline could offer an interesting opportunity to buy into this long-term growth story.

The post These 2 stocks are up more than 350% in five years, and here’s why I’d buy them appeared first on The Motley Fool UK.

More reading

• Trading at 3.5x net income, I think Jet2 could lead the next stock market recovery
• Consider these 2 dirt-cheap stocks to buy if the Straits of Hormuz permanently reopen
• Is this the beginning of a stock market recovery?
• 2 shares that could surge in a stock market recovery…
• Prediction: this FTSE AIM stock could soon be one of the top-rated according to these models

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended NMC Health. 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.

The question I want to answer today is, can the company repeat this performance over the next 10 years?

Growing the business 

The root of Dart’s performance over the past decade can be traced to the underlying performance of its holiday business. At the time of the financial crisis, Dart’s leisure business was relatively small. Instead, the group’s primary line of business was distribution and logistics.

Management’s decision to grow out its travel and airline operations have transformed the enterprise. From revenues of £1bn in 2014 and net income of £36m, sales and profits have jumped to £3.1bn and £146m, respectively, for fiscal 2019. 

The City is expecting Dart’s growth to take a breather in fiscal 2020. While revenue is expected to hit £3.5bn, profits will take a hit, analysts believe, as higher costs bite. They’ve pencilled in a decline in earnings of 15% for the current financial year. 

In a trading update ahead of its AGM later today, management seems to have confirmed this forecast. Commenting on current trading, it said: “With still some way to go in the leisure travel winter booking cycle, the board remains optimistic that current market expectations for group profit before foreign exchange revaluations and taxation for the year ending 31 March 2020 will be met.“

The travel and leisure business can be quite volatile, and this isn’t the first time Dart has had to deal with falling earnings. They fell 14% in fiscal 2017 before rebounding by nearly 40% in fiscal 2018. Based on this, I’m optimistic the company can make a strong recovery from this year’s set back. 

Undervalued 

But what about valuation? Well, at the time of writing, the stock is trading at a forward P/E of 9. In my mind, that’s a bit under what I’d be prepared to pay for this business. Other low-cost airline stocks are changing hands for multiples in the low- to mid-teens range. With that being the case, I’m optimistic the stock offers excellent value at current levels.

That said, I think it’s unlikely Dart can repeat its performance of the past decade over the next 10 years. The law of large numbers is holding the company back. As I noted above back in 2014, Dart’s sales totalled £1.1bn. They’ve since grown at a compound annual rate of 23% to £3.1bn. If sales were to grow at this rate for the next decade, its topline would hit £30bn by 2030, according to my calculations, making the enterprise bigger than British Airways parent IAG! 

However, I’m optimistic Dart’s earnings will continue to grow as the group improves its offering and expands its fleet. As a result, I believe it’s highly likely the stock will continue to produce attractive returns for investors for the foreseeable future.

The post This stock has already turned £1,000 into £21,000. Can it repeat that performance? appeared first on The Motley Fool UK.

More reading

• Trading at 3.5x net income, I think Jet2 could lead the next stock market recovery
• Consider these 2 dirt-cheap stocks to buy if the Straits of Hormuz permanently reopen
• Is this the beginning of a stock market recovery?
• 2 shares that could surge in a stock market recovery…
• Prediction: this FTSE AIM stock could soon be one of the top-rated according to these models

Rupert Hargreaves owns no share 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.

I believe Thomas Cook shares are likely to end up at zero, as I explained in a recent in-depth article here at the Motley Fool. For this reason, I won’t be going anywhere near TCG stock.

The good news is that for investors with an interest in this sector, I think there are some better opportunities elsewhere.

A winning choice?

One of the most successful stock market flotations of recent years has been budget airline Wizz Air Holdings (LSE: WIZZ). Shares in this flyer, which focuses on central and Eastern Europe, have risen by about 170% since the WIZZ IPO in March 2015.

However, recent comments from Western European budget airlines such as Ryanair and easyJet suggest short-haul operators may be starting to suffer from over-capacity on popular routes. This appears to be pushing down ticket prices and putting pressure on profits.

So far, there seems to be less evidence of this in eastern and central Europe, at least not at Wizz. The airline’s latest results showed a 2.3% increase in average revenue per seat, which helped to offset higher fuel costs. By contrast, easyJet reported a 6.3% fall in revenue per seat in its recent half-year results, despite rising costs.

My view: Wizz Air expects earnings per share to rise by about 15% this year. The airline’s load factor — the percentage of seats sold on each flight — is also improving. This key figure has risen by 1.6% to 93.2% over the last year, which I see as an encouraging performance.  I’m not sure that Wizz Air is a bargain at current levels. But I expect this firm to remain successful and believe it could be a good long-term hold.

A better choice?

One company I rate very highly in the leisure travel sector is AIM-listed Dart Group (LSE: DTG). This £1.25bn firm operates the Jet2 holiday business and airline. It’s also the owner of the Fowler Welch logistics business.

Figures released today show the company generated earnings of 98p per share for the year ended 31 March 2019, beating market forecasts for 95.1p per share.

These figures reflect a bumper year for the group. Pre-tax profit rose by 36% to £177.5m, while sales were 32% higher at £3,143.1m. Strong demand for Jet2 package holidays helped to support a good performance from the airline business.

What I’d do now

Given the cautious outlook reported by other airlines, Dart’s views on the year ahead are arguably more important than Thursday’s results.

The company says sales are still strong, but bookings are being made later than last year. This means pricing has to be “continually enticing.”

The company says it’s “optimistic” forecasts for the 2019/20 year will be met. This sounds hopeful to me, rather than confident, especially as analysts are already forecasting a 15% fall in earnings for the current year.

Despite this, I think DTG shares could turn out to be reasonably priced at current levels. Trading on 10 times 2019/20 forecast earnings, they don’t seem overly expensive to me. I might consider opening a starter position in Dart at current levels, with a view to buying more shares at a lower price when the opportunity presents.

The post Thomas Cook shares? I’d rather buy this FTSE 250 dividend growth stock appeared first on The Motley Fool UK.

More reading

• Warning: hedge funds expect this FTSE stock to tank
• Trading at 3.5x net income, I think Jet2 could lead the next stock market recovery
• Why are investors betting against Greggs shares?
• Consider these 2 dirt-cheap stocks to buy if the Straits of Hormuz permanently reopen
• £5,000 invested in Wizz Air shares 2 days ago is now worth…

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Wizz Air Holdings. 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.

It’s not the size of this return that impresses me, but the length. Few other companies on the market have been able to churn out mid-teens annualised returns for investors over the past decade and a half. And I believe Diageo is only just getting started. 

Just getting started

Over the past few years, Diageo has been mixed up. New management has set out to cut costs and improve shareholder returns by returning any excess cash to investors. For the 12 months to the end of June, the company returned £1.5bn to investors. Since then, another £2bn share buyback has been announced, on top of the regular dividend yield.

Today, the company has announced the disposal of a portfolio of non-core brands, which will net a further £340m to return to investors. Right now, the yield is a modest 2.4%. Including the cash returned via the buyback, the total investor yield is 3.5%. 

I expect this trend of cash returns to continue for the foreseeable future as Diageo reinforces its position in the global beverage market. For the first half of the year, net revenues rose 0.9% to £12.2bn, operating profits increased 4% to £3.7bn, while net income gained 14% to £3bn.

For the full-year, City analysts are forecasting earnings per share (EPS) growth of 18.% to 125p, giving a forward P/E of 22. While this multiple is slightly above what I’d usually be willing to pay for a stock, I think it’s about right for Diageo, considering its world-leading brands, cash returns to investors, and earnings growth. I’d buy the stock on dips from here. 

Running out of steam

Another stock that has produced fantastic returns for investors over the past decade is Dart (LSE: DTG). Over that period, shares in the travel business have added around 43% per annum, turning £1,000 into just under £60,000. 

Can this rate of return continue? I’m sceptical. For a start, City analysts are expecting the firm to report EPS growth of 30% for fiscal 2019, but they then expect earnings to decline slightly in 2020. As the stock is already trading at a premium to the rest of the UK transport sector, I think it will need to keep growing, or growth investors might abandon the company. 

So it looks as if the stock might take a breather next year, although Dart has a history of surpassing expectations. With that being the case, I’m not planning to bet against the business anytime soon. However, I do believe the travel group’s best days are now behind it, and a dividend yield of only 1% is not enough to make this an income play in my book. All in all, I rate Dart a solid ‘hold’ for existing shareholders. 

The post Here’s why I’d buy this FTSE 100 dividend growth stock that’s turned £1,000 into £7,000 appeared first on The Motley Fool UK.

More reading

• Are Diageo shares about to pull a Rolls-Royce?
• Investors tempted by beaten-down Diageo shares should mark 6 May on their calendars now
• £5,000 invested in Diageo shares 110 days ago is now worth…
• I asked ChatGPT if I should buy Aviva, Diageo or BAE Systems stock and it said…
• Trading at 3.5x net income, I think Jet2 could lead the next stock market recovery

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Diageo. 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.

Shares in the firm — which operates strike-hit Southern Rail — rose by as much as 16% in early trading after the company said that its overall results were “ahead of expectations” for the year ended 30 June.

Revenue was almost unchanged at £3,461.5m, but the group’s underlying operating profit fell by 9.8% to £135.9m. This was caused by a 25% drop in rail profits, which fell to £44.5m as a result of the mid-year expiry of the London Midland franchise. Bus profits edged higher, to £91.4m.

I’ve recently added this stock to my own portfolio, as I was tempted by its 6% dividend yield and modest valuation. So I was keen to see if today’s results confirmed my view that the worst of the firm’s problems are now over.

Dividend changes

Go-Ahead will pay an unchanged dividend of 102.8p for last year. But the company is changing its payout policy from this year onwards. Instead of a progressive policy, where the board aims to deliver a flat or increased payout every year, the group will pay out 50%-75% of earnings each year to shareholders.

The advantage of this approach is that it should be predictable and affordable, even if profits fall. However, a change like this is often a crafty way of announcing a dividend cut. Is that true here?

Analysts’ consensus forecasts are for earnings of 159p per share in 2018/19. If this view holds, then we should expect a dividend of between 80p and 119p this year. I suspect management will target a similar payout to the 2017/18 distribution of 102.8p per share, to avoid a cut.

Are things getting better?

Chief executive David Brown says that he expects “a robust performance” this year, despite pressures on profits from London bus and rail operations. I don’t expect rapid profit growth, but I do think the outlook should gradually improve.

Trading on 10 times 2019 forecast earnings, with an estimated forecast yield of 6%, I continue to see Go-Ahead as a good value buy.

A proven performer

Go-Ahead remains a turnaround stock, with certain risks. If you prefer to invest in companies with a track record of market-beating performance, you may want to consider transport firm Dart Group (LSE: DTG), which operates the Jet 2 holiday business.

Dart shares rose by 5% this morning after the company said that travel bookings were growing “slightly ahead of our 25% summer 2018 seat capacity increase”. What this means is that despite adding a range of new services this year, the firm’s flights are more fully-booked than they were last year.

The company also said that a greater number of customers were choosing more profitable package holiday deals, rather than flight-only tickets.

This could run and run

Analysts upgraded their profit forecasts for Dart after the group’s full-year results were published in July. Management confirmed today that it remains confident of meeting these increased expectations.

These shares have doubled over the last year. But strong earnings growth means that Dart stock still looks affordable to me, on 10 times forecast earnings. My buy rating remains unchanged.

The post Why I’d keep buying this FTSE 250 6% yielder and this double-bagger after today’s news appeared first on The Motley Fool UK.

More reading

• Trading at 3.5x net income, I think Jet2 could lead the next stock market recovery
• Consider these 2 dirt-cheap stocks to buy if the Straits of Hormuz permanently reopen
• Is this the beginning of a stock market recovery?
• 2 shares that could surge in a stock market recovery…
• Prediction: this FTSE AIM stock could soon be one of the top-rated according to these models

Roland Head owns shares of Go-Ahead 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.

The market seemed to be concentrating on the group’s struggling distribution business and believed that management’s expansion drive of Jet2holidays, as well as Jet2.com’s flying programme, was ill-advised. 

As a result, at the time, investors were only willing to award the shares a mid-single-digit earnings multiple. 

Unfortunately, after doubling my money, I sold out of the stock in 2013. As it turns out, this was just the start of Dart’s story. The shares have returned 1,370% excluding dividends between the beginning of 2012 to the time of writing. Over the past decade, the stock has produced a total return for investors of 49.2% per annum, turning every £1,000 invested into £81,400. 

Flying high

The driver of these returns has been Dart’s holiday business, which has taken off over the past five years. 

Group revenue has risen from £683m in 2012 to £1.7bn for 2017. And this morning, the company reported that for the fiscal year to 31 March, revenue was £2.4bn, in line with City forecasts. EPS smashed expectations, coming in at 74.6p for the financial period, compared to the City’s target of 63p. 

Today’s numbers will not only have City analysts revising their figures for 2018 but for 2019 as well. Dart has announced that, due to strong demand for its package holiday offerings, group profit before tax for the financial year ending 31 March 2019, will “substantially exceed current market expectations.” Analysts had previously been expecting a small decline in EPS for 2019 to 61p.

However, despite this growth, (and even after the 34% jump in the share price today) shares in Dart still trade at what I believe is an undemanding P/E ratio. 

Based on numbers for fiscal 2018 (as we’re still waiting for the City to revise the figures for 2019) the stock is trading at a P/E of 13.2. For a business that has been able to grow net profit at a compound annual rate of 27% over the past six years, this multiple seems to undervalue the company. 

Further growth on the cards? 

The big question is, whether or not the company can continue to grow like a weed? 

Selling holidays is a notoriously volatile and challenging business, Thomas Cook, for example, has spent the last few years in intensive care after coming close to bankruptcy in 2012/13. 

In my view, Dart is unlikely to come to the same fate. Unlike Thomas Cook, the company has a strong balance sheet. Debt is entirely offset by cash, and the business is throwing off a tremendous amount of operating cash flow. 

Dart’s advantage is its low-cost offering. The firm has cracked the code of offering inexpensive, high-quality package holidays. And people are lining up to use its services. For 2018, the number of passengers flown by Jet2.com increased 46% to 10.4m. The number of package holiday customers booked jumped by a similar amount to 2.5m. All in all, several million more people used the company’s services than the year before.

These numbers lead me to conclude that Dart’s growth isn’t going to come to a halt any time soon. In fact, it looks as if the sky is the limit for this holiday company. There’s still time to buy into Dart’s growth story.

The post This small-cap has already turned £1,000 into £81,000. Time to buy? appeared first on The Motley Fool UK.

More reading

• Trading at 3.5x net income, I think Jet2 could lead the next stock market recovery
• Consider these 2 dirt-cheap stocks to buy if the Straits of Hormuz permanently reopen
• Is this the beginning of a stock market recovery?
• 2 shares that could surge in a stock market recovery…
• Prediction: this FTSE AIM stock could soon be one of the top-rated according to these models

Rupert Hargreaves owns no share 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.

With time running out to take advantage of your £20,000 allowance (the current tax year ends on 5 April), here are a couple of stocks that appear to still be flying under many investors’ radars.

Rising profits

Thanks to larger peers like easyJet and Ryanair, Leeds-based low-cost airline Jet2 receives relatively little attention from the media. Quite how long this remains the case is open to debate, particularly when the most recent trading update from its owner —  travel and logistics firm Dart Group (LSE: DTG) — is taken into account. 

Thanks to a “more normalised pricing environment” in its Leisure Travel arm, Dart’s management now expects full-year group underlying pre-tax profit to come in “materially ahead of current market expectations“. That’s not something you hear too often from a company involved in this industry.

As far as the next financial year is concerned, Dart has already stated that forward bookings for this summer are “satisfactory“. New operating bases at London Stansted and Birmingham airports appear to be performing well and while the company understandably remains “cautious” on pricing, it now expects trading to be “broadly in line” with the 2017/18 financial year. 

At 13 times expected earnings, shares in Dart are cheaper than the aforementioned easyJet (16) and Ryanair (14), despite having already increased 50% in price over the last year alone. What’s more, the company’s growing distribution and logistics division — Fowler Welch — arguably gives it a degree of earnings diversification missing from the other two.

Revenue growth

While the threat of increased regulation in the CFD/spread betting industry has certainly hit the headlines, it feels like £445m cap CMC Markets (LSE: CMCX) has been somewhat forgotten about, at least when compared to its larger peer Plus 500. Although the former’s stock has climbed 17% in value over the last year, that’s nothing compared to the latter’s 178%. Shares in market leader IG Group have also performed better, rising 52% over the same period. Nevertheless, I still think shares in CMC could be worth picking up.

While revealing in January that the number of active clients had fallen 4% over the year to date, the company highlighted that the proportion of high-value traders had actually grown, leading to a 26% increase in revenue per client over the same period. 

There’s also the fairly reasonable valuation to consider. Taking into account a predicted 19% drop in earnings per share in the 2018/19 financial year, CMC’s stock can be picked up for 12 times forecast earnings at the current time, with a PEG ratio of just 0.5. Although nothing can be guaranteed, the shares also look set to yield close to 5%. 

Whether the aforementioned threat of regulation is sufficient to unnerve prospective investors will naturally come down to financial goals, time horizons and risk appetites. That said, I’m inclined to agree with CMC that its focus on attracting experienced and wealthy clients to its services (rather than amateur traders) should mean that its long-term outlook remains positive. The fact that the company has 15 offices around the world and a growing stockbroking business in Australia shouldn’t be ignored either.

The post 2 under-the-radar growth stocks I’d consider buying before the ISA deadline appeared first on The Motley Fool UK.

More reading

• Trading at 3.5x net income, I think Jet2 could lead the next stock market recovery
• Consider these 2 dirt-cheap stocks to buy if the Straits of Hormuz permanently reopen
• Is this the beginning of a stock market recovery?
• 2 shares that could surge in a stock market recovery…
• Prediction: this FTSE AIM stock could soon be one of the top-rated according to these models

Paul Summers has no position in any of the companies 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.

Selling stocks because of short-term weakness can be a costly mistake. In these situations, I often consider using the weaker price to top up my holding instead.

I believe we’re likely to face more market volatility this year, so today I’m looking at two companies I’d be happy to buy on the dips.

Cleared for take off

Travel firm Dart Group (LSE: DTG) is best-known as the owner of the Jet2.com budget airline and the Jet2 package holiday business. The firm’s stock hit a patch of turbulence last year after heavy investment dented profits and Brexit fears hit airline stocks.

Investors who took advantage of this wobble and topped up at 500p will be smiling today. Dart stock rose by 16% to 750p this morning, after management said results for the year to 31 March would be “materially ahead of expectations”.

The word “materially” suggests to me that profits will be at least 10% higher than expected. I estimate that earnings for the year could be around 58p per share. Even after today’s gains, that leaves the stock on a forecast P/E of 13. That seems affordable to me, given the company’s strong balance sheet.

What could go wrong?

The airline and holiday industry is heavily dependent on consumer spending. A recession could hit profits hard. With fuel prices rising again, higher costs could also be a risk.

At this early stage, Dart Group expects profits next year to be broadly unchanged. Although flat earnings might not sound very exciting, I’d remember that this company has a history of beating expectations. Dart is definitely a company I’d buy on the dips.

Better than gold?

Tequila has sometimes been referred to as liquid gold for its colour and purity.

The Mexican tipple is only one of the spirits sold by FTSE 100 drinks giant Diageo (LSE: DGE) in more than 180 countries around the world. The group’s portfolio of 200+ brands, and its global reach, both mean that this £61bn behemoth should be fairly well protected from localised problems.

Indeed, I’d argue that Diageo is probably one of the most defensive businesses you can find, including gold. In a recession, people may trade down to cheaper brands, but will rarely stop drinking altogether. When times are good, trading up to premium spirits is a popular feelgood choice.

A buying opportunity?

Like Dart, Diageo stock is prone to occasional dips. Historically these have been good buying opportunities. Given this, I’ve been wondering whether recent falls — the shares are down nearly 10% from last year’s high — are enough to justify a buy.

I’m not yet convinced. The stock still looks quite expensive to me, on a 2018 forecast P/E of 22. Earnings per share growth is also expected to slow from 18% last year to just 5% this time, as favourable currency movements are reversed.

Although the 2.6% dividend yield is starting to look tempting, I’d prefer to have something a little closer to the FTSE 100 average of 4%.

I’m going to continue watching Diageo for now, but it’s definitely a stock I’d consider buying on the dips.

The post One FTSE 100 stock and one growth star I’d always buy on the dips appeared first on The Motley Fool UK.

More reading

• Are Diageo shares about to pull a Rolls-Royce?
• Investors tempted by beaten-down Diageo shares should mark 6 May on their calendars now
• £5,000 invested in Diageo shares 110 days ago is now worth…
• I asked ChatGPT if I should buy Aviva, Diageo or BAE Systems stock and it said…
• Trading at 3.5x net income, I think Jet2 could lead the next stock market recovery

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo. 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.