At what point should you call time on a troubled investment and sell, regardless of your losses? There’s no single right answer to this, but I’d suggest that for Bitcoin, that time is now.
The original cryptocurrency has lost nearly 70% of its value over the last year and the outlook still seems very uncertain to me. Bitcoin isn’t generally accepted as a currency and isn’t backed by assets such as gold, shares or property.
I prefer to put my money in shares, which give me part-ownership of a real business. Today, I want to look at two growth stocks I believe should continue to deliver strong results for investors.
A new global brand
Sometimes the timing is just perfect. When Fevertree Drinks (LSE: FEVR) was launched in 2005, the trend for posh gin & tonic was just getting going. Almost 15 years later, brand Fever-Tree is the UK’s number one mixer by value in the off-licence trade.
The Fevertree share price has risen by more than 1,600% since the group floated in 2014. The shares were up by another 8% at the time of writing on Thursday, after the company said its results for 2018 would be “comfortably ahead” of expectations.
Management said sales rose by 39% to about £236m last year. That’s well ahead of analysts’ forecasts for a 33% increase to £226m. UK drinkers continue to power the group’s growth and spent 52% more on the firm’s upscale mixers in 2018. But overseas markets are also expanding. US sales climbed 21%, Continental Europe was 24% higher, and sales in the Rest of the World rose by 42% in 2018.
The secret to this success
One of the reasons this business has been such a successful investment is the way it operates. By outsourcing the bottling and distribution of its drinks, it avoids the need to invest in costly factories and warehouses. This approach makes the business amazingly profitable, with a return on capital employed of more than 41% in 2017.
At 2,800p, Fevertree stock trades on a 2019 forecast price/earnings ratio of 48. The shares could stumble if the company disappoints. But if growth continues at the current rate, I think this could prove to be a good long-term entry point.
Profit from posh fashion
Continuing the upmarket theme, my second suggestion today is FTSE 100 luxury fashion house Burberry Group (LSE: BRBY).
This company is currently in the early stages of a multi-year plan to refresh the group’s product range and take the Burberry brand yet further upmarket. It’s too soon to say how successful chief executive Marco Gobbetti will be, but a statement this week indicated that sales remain stable across the group’s markets.
Moving on up
The first big test of Gobbetti’s strategy will come in February, when new designer Riccardo Tisci’s debut collection arrives in stores. In the meantime, I believe investors should take comfort from Burberry’s above-average profitability and strong cash position.
The group generated a return on capital employed of nearly 25% in 2017/18, and reported net cash of £647m at the end of September 2018. In my view, this makes the 2.4% dividend yield one of the safest payouts in the FTSE 100.
Burberry shares aren’t cheap on 22 times 2019 forecast earnings. But the group’s 160-year history and strong financial performance means I’d be comfortable buying at this level.