Over the past few months, whenever I’ve written a piece highlighting stocks I believe could have growth potential, I expected double-digit growth over the next year or so.
Given the recent equity market sell-off due to global concerns surrounding the coronavirus, I think that for the stocks below, we could see double-digit growth within half a year!
My main conviction behind this is that the ‘fear selling’ by investors over the past two weeks has meant a fundamental dislocation in the fair value of some stocks. Sure, some airlines and some manufacturers potentially should have a lower share price given the loss of revenue and supply chain issues that they’ll experience. But there are some firms that have taken a share price hit, not because anything is wrong, just due to general risk sentiment.
It’s these firms that could see a strong rebound once the dust settles and investors realise that the businesses concerned are actually strong ones.
Build on strong foundations
The first business I’m keen on is Barratt Developments (LSE: BDEV). It’s a housebuilder and last month posted good growth figures in a 2019 trading update. Revenue was reported to be up 6.3%, and profit up 3.7%.
The key reasons for this during the trading period in question can be put down to the general election result, which ensured continuity of government at No.10 Downing Street and thus higher consumer confidence. Another reason is that interest rates continue to be low here in the UK, allowing consumers to access cheap mortgage rates.
With strong results and a good outlook ahead, the share price should be heading only one way, I feel, and that’s up. However, due to the market sell-off, the share price is down over 13% in under a month. To me, this makes it look incredibly undervalued, and the stock should recover this loss when investors look beyond the short-term global risks.
Pass me the telescope
OK, that’s a rather terrible lead-in that references the logo of Admiral Group (LSE: ADM), and I hope you’ll forgive me for it. In fact, investors looking to Admiral for share price growth need no help at all from a telescope. Its strengths are easy for anyone to see.
In a similar vein to Barratt, only last month we had a trading update for 2019 full year preliminary results, which are expected to show pre-tax profit between 6% and 13% higher than the previous year. The financial services firm, which mostly specialises in motor insurance, has benefited from increased commission revenue from the introduction of the ‘Personal Injury Discount Rate’ introduced in July last year.
Again, Admiral seems to me to be in fine shape, and is a comparatively low-risk stock, given the industry it operates in. The market sell-off has wiped off around 7% from its value, all of which in my opinion could be recouped in half a year or so, given the lack of correlation to the business it operates in and any easing in concerns over the virus.