Political developments regarding the general election and Brexit have prompted many investors to check their portfolio balances more often than not as they wonder how their stocks may fare in December. Two primary emotions, fear and greed, may drive many investment decisions, but investing for the long run should not keep you up at night worrying when you have a clear plan.
As part of a diversified portfolio, I’d look for shares that are likely to offer value, growth potential or a healthy dividend. Markets are always forward looking and in 2020, most shares in the FTSE 100 are likely to leave behind the current political discourse.
Combining innovation with retail
Online grocer Ocado Group (LSE: OCDO) has been one of the hottest growth stocks of 2019. Year-to-date, the share price is up about 67%.
It is the fastest-growing grocer according to recent market share data from Kantar Worldpanel. Yet its market share is still the smallest compared to bigger rivals, coming in at 1.4%. I may not be the only one to see further growth potential for the group.
Earlier in the year, it sold 50% of its retail business for £750m to Marks & Spencer (M&S). In September 2020, Ocado’s deal with Waitrose expires. Then OCDO will deliver M&S grocery products as well as its own-label products and big name branded goods.
In addition to grocery delivery, it operates automated fulfilment centres or warehouses. And management plans to further concentrate on selling technological solutions to other grocers globally. For example, in late November, it signed a deal with Japan’s Aeon to help the retailer establish an online business, Ocado’s first deal in Asia.
Ocado’s website shows that the group processes 260,000 orders a week with an order accuracy rate of 99% and an on-time delivery rate of 95%. These are impressive metrics.
With a trailing price-to-sales (P/S) ratio of 5.5x, Ocado is not necessarily a cheap stock. It is not profitable and does not pay dividends either. Yet, I regard its growth prospects and market potential, especially in combining technology with retail, as important catalysts behind the premium. I’d look to be a buyer at every dip.
Mining for profits
As you build your portfolio, you may want to analyse Anglo-Australian miner Rio Tinto (LSE: RIO) further. It is a diversified mining giant with world-class assets.
The company operates under four product groups – Aluminium, Copper & Diamonds, Energy & Minerals and Iron Ore. Its flagship commodity, iron ore, is the largest contributor to revenue.
Despite volatility due to US-China trade war tensions, miners have in general enjoyed relatively strong earnings in recent quarters. In RIO’s case, strong iron ore prices have been supporting the declines seen in aluminium and copper.
In mid-October, the group released third-quarter production results that pleased investors. Since then, the shares are up about 4.5%. Year-to-date, the stock is up almost 14%.
Management continues to embrace new technologies that are likely to help deliver safety benefits, enhance productivity and reduce costs.
Its trailing P/E of 8.6 and dividend yield of almost 6.1% are likely to put the stock on the radar of value and income investors. The shares are likely to go ex-dividend in March 2020. Management is also known for declaring special dividends.
While we cannot know what commodity prices will be doing in 2020, many investors are likely to buy into the shares opportunistically in any downturns.