Troubles from war

Let’s start with the one I wouldn’t touch. It’s Ferrexpo (LSE:FXPO), the iron ore pellet producer. The stock is down 38% over the past three months, extending the 55% drop over the past year.

The firm has been in a sorry state, negatively impacted by the war in Ukraine. Given that the business has three iron ore mines and an iron ore pellet production facility in the country, operations have been extremely difficult.

To put the financial impact into perspective, back in 2021 the full-year revenue was just over $2.5bn. For 2023, this fell to $651m. It’s a huge drop, with the 2023 report stating that “our people and our
business continue to be severely affected”.

Although I’m not criticising the company, I don’t see how I can invest in the firm until we get a resolution to the war. Until then, I can only see the share price falling further.

Granted, I could be wrong, with the share price potentially rallying due to a significant boost to iron ore prices or some unexpected events.

A dip to consider

On the other hand, I do like Bridgepoint Group (LSE:BPT). Even though the stock is down 15% over the past three months, I think it’s a dip worth buying. Over the past year, the stock is up 8%.

There doesn’t appear to be any clear cut reasons behind the slide lower in recent months. True, the 2023 results that came out in March weren’t as strong as some might have expected. Profit was up 12% versus the previous year, which is still a solid performance in my eyes.

I do get that some investors don’t want to get involved in private equity and private credit right now. With the stock market being quite uncertain, having money tied up in private equity that can’t easily be sold for cash isn’t that appealing. Plus, with higher interest rates, the potential for default on credit can increase.

Even with these risks, the business is doing very well. In fact, assets under management (a key metric for growth) increased by 7% from last year, to hit $44.7bn. Given the size that the group has, spread with offices around the world, I think it’s very well placed to push on. When I zoom out, the picture is still rosy.

On that basis, I’m thinking about buying the stock for my portfolio shortly.

The post After sifting through the dogs of the FTSE 250, here’s what I found appeared first on The Motley Fool UK.

So if I can find some cheap stocks to buy in January that can supercharge my 2023, I’m keen to act. After doing my homework, here are a selection of shares I’m looking at buying for just that purpose.

Building on strong 2022 growth

Investec (LSE:INVP) is a FTSE 250 listed bank that might not be one of the top tier UK names, but is still a company that can offer me attractive returns. The price-to-earnings ratio (P/E) is at 9.63, below my usual ‘fair value’ figure of 10. What makes this ratio figure even more impressive is that the share price has risen by almost 32% in the past year.

The company has been performing well, with the interim results through to the end of September showing a 25.1% growth in earnings per share versus the same period last year. With the dividend per share having also increased 22.7%, I can earn income from this dividend stock going forward.

However, funds under management did drop by 7.6%. I know that the volatility in financial markets has caused some to pull money out from places such as Investec, but it can’t afford to keep seeing investor outflows in 2023.

Buying on the low

Next up is Bridgepoint Group (LSE:BPT). The business specialises in private equity and private credit investments, with over £32bn in assets under management. In contrast to Investec, the share price for Bridgepoint has fallen by 60% in the past year.

The company has found it challenging to exit privately-held investments recently, due to the gloomy economic outlook. There’s also the risk it can sell an investment at a much reduced price. After all, these are private companies and it’s nowhere near as easy as selling stock in a listed business.

However, I feel the share price fall has been excessive and represents fear instead of rational decision-making. In a November update, Bridgepoint said it was on track to meet full-year targets. On this basis, I think it’s a good buy now. It’s trading close to the lowest level since it went public in 2021.

A stock to buy for lower inflation

Finally, my last pick for a good value stock is Tesco (LSE:TSCO). With a P/E ratio of 10.75, it only ranks as ‘fair value’ on that scale. But I think the share looks cheap when I consider the outlook.

The share price has fallen by 20% over the past year as grocery inflation has climbed and climbed. Yet the latest November figures showed inflation fell for the first time in 21 months. Granted, it only inched down 0.1%, but at least it didn’t rise.

I think we are close to peak inflation here in the UK. If I’m right and inflation falls later this year, people will likely increase their spending at Tesco as their money goes further. Even though it won’t be a perfect correlation, easing inflation should allow the stock to regain some/most of the 20% inflation-induced drop from 2022.

I think the above stocks could outperform in 2023 and so I’m likely to buy all of them shortly.

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Bridgepoint: FTSE 250 bound

Private equity group Bridgepoint‘s (LSE: BPT) inclusion in the FTSE 250 looks nailed on to me. Having arrived on the market last month, shares have already rocketed from their listing price of 350p to 520p. 

Rather conveniently for a company entering the UK’s second tier, Bridgepoint focuses on investing in the mid-cap space. Already managing roughly €27bn of assets, the money raised from July’s IPO should give the company plenty of ammunition for an acquisition spree. And one could argue that there’s never been a better time to go hunting with plenty of UK firms still reeling from the pandemic. 

As a potential buyer of the stock, I’m just wondering whether we could see it lose some steam over the next few weeks as the IPO shine wears off. This is a trend we’ve seen in some stocks in 2021, most notably across the pond. Knowing that the company’s original owners offloaded a whole heap of stock as it arrived on the market, while understandable, isn’t ideal either.

Still, one can’t deny that the shares haven’t done well so far. The listing of a private equity group is also rare, giving BPT some novelty value for retailer investors like me. If FTSE 100 peer 3i Group is anything to go by, the long-term returns could be rather tasty.

On balance, though, I’m happy to sit on the sidelines for now. 

Contrarian bet

West African-focused Endeavour Mining (LSE: EDV) also looks primed to join the FTSE 250 following its recent London listing.

In addition to several promising exploration projects, EDV already has mines operating in Senegal, Cote d’Ivoire, and Burkina Faso. Collectively, these help the company to feature in the top 10 of global gold producers.

This month’s Q2 update suggested the company was firing on all cylinders. Gold production rose 18% in the previous quarter while costs fell. As a result, EDV now thinks it can hit the top half of full-year guidance. 

While the shares haven’t performed as well as those of BPT, some in the market are very bullish. Broker Berenberg, for example, has a target price of 2,800p on the stock. That would be a rise of 60% from today’s share price. Although an ambitious goal, inclusion in the FTSE 250 won’t do the firm’s profile any harm.

Then again, one does need to be conscious of the risks. As any Fools who remember what happened in 2016 will know, mining can be a highly cyclical sector. In addition to the difficulties and costs encountered in digging up precious metals in politically sensitive regions, those doing so are never in control of how much the shiny stuff sells for. And, over the last few months, the gold price has performed poorly despite concerns over inflation. 

Given that I already have exposure to gold miners via a low-cost exchange-traded fund, EDV is not for me right now. However, an improving balance sheet (net debt fell by $85m during the quarter to $77m) and dividends make it one I’ll keep an eye on.

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But is it going to be a flash in the pan, or the start of something big? And should I buy shares on the open market now? Before I can decide that, I need to take a look at what the company does.

Bridgepoint is a private equity group. It describes itself as “an international alternative asset fund management group focussing on the Middle Market.” That, it says, consists of “investing in market-leading businesses typically valued between €200 million and €1.5 billion.”

There are other segments in the firm’s portfolio, but that’s the core of it. And with €27bn in funds under management, it seems there are plenty of wealthy individuals who like Bridgepoint’s approach. It’s clearly starting public life as a successful company, rather than as a speculative chancer coming to market in need of cash. And that’s presumably the driver behind the early Bridgepoint share price spike.

Why might I buy?

As a small private investor, what might be the attraction for me? Well, it’s sort of a way to gain exposure to private equity markets. That doesn’t mean I’d get to invest in such assets directly, but that’s fine. I’d never hand over my money to a fund manager to invest for me anyway. But buying Bridgepoint shares would get me a cut of the profits the company makes in fees from investing rich people’s cash. And I do like that.

In fact, I’m keen on the idea of investing in asset managers generally. And I’ve come close to buying Man Group shares on more than one occasion. The Man share price has had an erratic five years, though. But the company has been paying decent dividends.

Bridgepoint share price volatility?

Might the Bridgepoint share price be volatile too? Well, its underlying investments, in private rather than publicly-quoted companies, could offer an advantage. Those companies don’t have hordes of short-term investors hanging on their daily share price movements. They don’t even have share prices. So Bridgepoint should be under less pressure to trade, from investing institutions that look no further than the next quarter’s figures.

Short-term volatility wouldn’t put me off, mind. As billionaire investor Warren Buffett suggests, I wouldn’t consider buying Bridgepoint shares unless I was prepared to hold them for at least 10 years.

So I do see the attractions of Bridgepoint. But whenever I want to put some money into an asset manager, I’ve always gone for an investment trust. Doing that gets me a direct share in the underlying assets. I don’t think I’ll move away from that strategy, but I will be watching where the Bridgepoint share price goes next.

The post The Bridgepoint share price soars on market debut. Is this the 2021 IPO stock to buy? appeared first on The Motley Fool UK.

That’s quite an impressive amount of growth in my eyes. And it allowed the business to raise roughly £300m in the process. But what exactly does Bridgepoint do? And should I be adding some shares to my portfolio? Let’s take a look.

The explosive Bridgepoint share price

Like most private equity firms, Bridgepoint is effectively a holding company. In other words, it raises capital and then purchases substantial stakes in various businesses, much like any retail investor does in the stock market. The difference is that, apart from having significantly more money at its disposal, the business doesn’t invest in public companies but private ones.

In total, Bridgepoint has around €27.4bn of assets under management (AUM). The capital is allocated across six different investment strategies that focus on equity (ownership in a company) and credit (lending money to a company). With a 30-year track record of what it describes as “delivering compelling returns with an attractive risk profile”, I think it’s understandable to see the Bridgepoint share price surge as it makes its public debut.

So how does it make money? The majority of AUM are owned by wealthy patrons who let the firm invest on their behalf. Bridgepoint then generates income by charging management fees for providing this service. And since these fees tend to scale with consistent performance, the interests of the firm and its wealthy patrons tend to be closely aligned. That’s a good sign in my experience.

Some risks to consider

By going public, Bridgepoint enables everyday retail investors to gain some exposure to private equity markets. Why does that matter? Well, it’s an alternative investment option that is a non-correlated asset class compared to stocks or bonds. That means shareholders can further diversify their nest eggs and protect them from the current volatile state of the public markets.

But even in the private markets, risks remain high. The management fees are the primary source of income for this business. But if it cannot deliver the returns expected by its patrons, these investors may move their capital to a competing firm. After all, why would they pay substantial management fees if the performance is lacklustre?

To maximise investment returns, Bridgepoint has to employ a strong team of leading financial and business experts. But these experts don’t come cheap. That’s why personnel salaries represent 71% of total operational expenses. Suppose the company is unable to retain a talented workforce, or if their performance begins to wobble? In that case, I wouldn’t be surprised to see the Bridgepoint share price take a significant hit.

The bottom line

I can’t deny that the ability to add a non-correlated asset to my portfolio sounds alluring. But I’m not personally interested. I like to take charge of my own investments. And so, buying shares in a business that invests on behalf of others is not something that tempts me.

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