Pick the right stocks and your wealth could improve rapidly. Nevertheless, recent market volatility as a result of the forthcoming referendum makes it even more important to know when to take a profit on successful investments. Let’s look at three companies whose share prices have rocketed in a very short period. Should investors hold, sell or buy?
Sprinting away
JD Sports (LSE:JD) shares have zoomed ahead of the FTSE 250 pack in the last year, rising almost 100% to 1,292p from 673p.
This performance may continue due to Euro 2016, the Wimbledon Championships and the Rio Olympics encouraging us to start exercising. There’s also the small matter of its biggest rival, Sports Direct doing its best to run backwards. On a purely anecdotal note, JD seems to have a better image, particularly with younger people.
However, the market likes a successful company and tends to slap a high valuation on its shares fairly quickly. JD’s shares now trade on a forward price-to-earnings (P/E) ratio of over 18. That’s a bit steep for any high street retailer in my book, regardless of how well it’s run (JD scores high on quality ratios such as return on capital employed and has a decent balance sheet). The shares also yield only 0.58% for the current year. One to buy on the dips, perhaps?
A tempting buy?
Domino’s Pizza (LSE:DOM), has served up excellent share price gains in the last year (+33%). Like JD Sports, the summer of football, tennis and athletics should do no harm at all to the company’s profits as more reach for their smartphones to order takeaway rather than the pots and pans over the next three months. I highly doubt the referendum result will dent peoples’ love for pizza either.
Of course, nothing’s guaranteed and having high expectations frequently leads to bitter disappointment. An early, unexpected exit from Euro 2016 by England won’t be welcomed by football fans or the company. Moreover, it could be argued that the Olympics won’t draw people to their sofas to quite the same extent or regularity as Euro 2016.
Another issue is the company’s valuation. On a forward P/E of 24, Domino’s is expensive, although it does pay an adequate dividend yield (2.34%), covered by earnings. If markets do drop over the next couple of weeks, it may be an opportunity to grab a slice of the business.
Mining for trouble?
Shares in Anglo American (LSE:AAL), now priced at 642.5p, have enjoyed a rise of almost 280% since mid-January, giving credence to legendary stock-picker John Templeton’s advice to “invest at the point of maximum pessimism“.
Will the rebound in commodity prices continue? No one knows for sure. One thing to remember when investing in any miner (or oil stock, for that matter) is that their success and the subsequent performance of their shares ultimately depend on things they can’t control. That said, mining firms are likely to benefit from a depreciation in sterling following a Leave vote on June 23.
Anglo’s shares currently trade on a forward P/E of just over 16 and there’s no dividend to speak of. Personally, I would be tempted to bank at least some profit now, particularly given its high debt levels and concerns over slowing global growth. Should world markets get the jitters, Anglo American could be among the first stocks to suffer.