Lighting products

As a quick reminder, Luceco is best known as a manufacturer and supplier of lighting products for both commercial and domestic use. It also creates and supplies wiring accessories as well as portable power solutions too.

It is worth remembering that a penny stock is one that trades for less than £1. So what’s happening with Luceco shares currently? Well, as I write, they’re trading for 88p. At this time last year, the stock was trading for 373p, which is a decline of 76% over a 12-month period.

I believe macroeconomic headwinds, as well the stock market correction caused by geopolitical events, have hampered the performance of Luceco shares.

Interim results and the bull case

Since Luceco released results for the six months ended 30 June 2022 yesterday, the shares have climbed 10%. So let’s dig deeper into the results. I see that revenue, profit, margin, and dividend per share all dropped compared to 2021. This is because 2021 was a record year for Luceco. It benefitted from last year’s DIY boom linked to the pandemic and stay-at-home guidance. It said that results posted for these six months were in line with expectations, due to normalised trading conditions.

I believe the shares rallied due to the comparison between 2022 interim results and the company’s pre-pandemic results. Revenue and margins were both up significantly. Furthermore, Luceco said it is undergoing a “strategic improvement process“. This will help it draw a line under the pandemic period, which hindered it massively. Based on these results, it said this strategy was working.

Next, I note that Luceco has entered the electric vehicle (EV) charging market by purchasing Sync EV in March. This will help diversify its business and boost performance. It is estimated that the EV changing market is to surge by close to £500m by 2025. Sync currently has 2% of market share. Luceco believes it can boost this figure and benefit due to its profile and infrastructure already in place.

Finally, I’m buoyed that Luceco pays a dividend that would boost my passive income stream, although I am conscious that dividends are never guaranteed.

Risks and my verdict

Despite Luceco shares rallying, macroeconomic headwinds could continue to cause issues. Rising costs could put pressure on profit margins. Supply chain constraints could affect its ability to deliver to its clients and hamper its overall sales figures. This could have a material impact on performance and returns.

In conclusion, I have decided that Luceco is not a penny stock I would add to my holdings. The pandemic affected the business negatively, and although it bounced back well due to heightened demand for DIY products, macroeconomic issues currently present yet another challenge for the business. I believe there are better stocks out there for me to buy for my portfolio.

Lockdown beneficiary

In retrospect, the time to pick up stock in online casino and gaming operator 888 Holdings (LSE: 888) was just before Boris Johnson announced the first national lockdown. Back then, the share price was around 80p. A couple of months ago, 888 achieved a 52-week high of 494p. 

Unfortunately, I didn’t act on my own bullish call in 2020, due to the sheer number of attractively-priced options out there during the market crash. Even so, I’d still be prepared to buy now, especially as 888’s valuation has now fallen back below the 300p mark.  

Aside from general market skittishness, some old-fashioned profit-taking is probably behind this selling pressure. Some investors may have taken the 15% reduction in business-to-consumer betting revenue in Q3 as a sign that trading momentum is now slowing. A more likely catalyst, however, is the recent legal shake-up in the Netherlands that requires online betting firms to obtain a licence. In response, 888 has ceased to operate there — a decision that’s expected to hit profit by $10m. 

I’d snap up this cheap UK share

Since this is a temporary measure, I think the fall may be overdone. Shares in 888 now trade at just 14 times forecast FY22 earnings. That looks great value, considering 888’s agreement to buy William Hill’s non-US assets could put a rocket under profits in time. What’s more, the stock comes with a potential 12p per share dividend next year (or 4.1% yield at the current share price).

All this before we’ve even considered the increase in business 888 could see if there’s a fourth national lockdown.

Buy the dip?

Another cheap UK share I’m interested in buying would be commercial and domestic lighting firm Luceco (LSE: LUCE). Despite staging a brief comeback in November, shares in the mid-cap were back to 337p by last Friday. That’s a significant drop from the 52-week high of 513p it hit back in September. 

This fall leaves Luceco’s forecast P/E at a little under 16. This may not look like a screaming bargain initially. However, this number should never be looked at in isolation, especially if the company scores well on quality metrics.

While past performance is definitely no guide to the future, Luceco has long generated high returns on invested capital. It’s this, according to UK top fund managers like Terry Smith, that plays a significant role in great long-term returns. Luceco could therefore prove to be a steal at current levels.

I must emphasise the word could here. There is a chance that recent cost pressures may not peak in early 2022 as the company expects. The fact that less than half of the company is available to buy on the market (i.e. a low ‘free float’) may also mean the share price lurches rather than drifts lower.

Still, I’m not concerned with trying to time the market exactly. What’s more important to me is buying a decent business at a sane price and holding on. I remain bullish on Luceco.

Rupert Hargreaves: Drax

Power generation group Drax (LSE: DRX) used to operate one of the largest coal power stations in Western Europe. It has since reduced emissions by over 90%. 

It is not stopping there. By introducing Carbon Capture and Storage technologies, management believes the company can deliver “millions of tonnes of negative emissions” annually from 2030. 

This path is unlikely to be risk-free. Challenges the company may face include additional regulations and rising costs. 

Nevertheless, considering Drax’s growth potential, I would buy the stock today. 

Rupert Hargreaves does not own shares in Drax.

Charlie Keough: BP 

My best stock pick for November is BP (LSE: BP). At the time of writing, the last 12 months have seen returns of 75% – and I can only see this continuing.  

What excites me about BP is that the firm is clearly looking towards the future. It has adopted a clear strategy to increase renewable production through attainable targets. It estimates it will be generating 50GW by 2030. That’s enough to power 15 million homes. 

While the switch from gas and oil to renewable could cause some short-term issues, I think BP is a great long-term addition to my portfolio.  

Charlie Keough does not own shares in BP.

Zaven Boyrazian: Games Workshop

Games Workshop (LSE:GAW) is the mastermind behind the immensely popular Warhammer franchise. What started out as a fun tabletop adventure has evolved into a fully fletched world, sprawling into video games, books, tv shows and even films.

The bulk of income is generated from selling figurines to play the classic tabletop game. However, additional revenue originates from IP licensing agreements and a recently launched streaming service called Warhammer+.

The stock was hit hard in September following rising freight costs triggered by the pandemic. But these appear to be short-term problems. So, personally, I think the recent decline presents an excellent buying opportunity this month.

Zaven Boyrazian does not own shares in Games Workshop.

Edward Sheldon: ASOS

My best British stock pick for November is online fashion retailer ASOS (LSE: ASC). Its share price has fallen recently and I think this has created a good entry point for long-term investors like myself.

ASOS does have a few challenges to work through right now. Firstly, it looks set to face higher input costs and supply chain challenges in the near term. This could hit profits. Secondly, the company needs to find a new CEO. Recently, Nick Beighton announced that he would be stepping down.

I’m not overly concerned by these challenges, however, as I think ASOS will overcome them. I expect the stock to recover in the medium term as the growth story associated with the e-commerce boom is still very much intact.

Edward Sheldon owns shares in ASOS.

Paul Summers: Luceco

After a brutal couple of months for its share price, I think LED lighting firm Luceco (LSE: LUCE) now looks great value. 

Sentiment around the company has soured due to concerns over supply chain holdups and significant cost inflation. As problematic as these are, I question whether either should trouble a long-term Foolish investor. A P/E of 17 at the time of writing takes at least some of this into account and looks very reasonable for a company generating great returns on capital in a niche area. There’s even a 2.2% yield to comfort holders while they await a recovery. 

Paul Summers has no position in Luceco

Harshil Patel: Future 

My best stock pick for November is magazine and website publisher Future (LSE:FUTR). It’s a US-focused and digital media platform.  

Future owns over 200 brands, including Techradar, Digital Photographer and Marie Claire.  

It had a string of encouraging trading updates this year and I reckon the positive trend could continue. As a content creator, it earns from digital advertising. This space could thrive over the coming months as we approach Black Friday sales and the Christmas holidays. 

Economic uncertainties and pandemic concerns remain, but overall, I reckon it’s a decent growth company with momentum on its side.  

Harshil Patel does not own shares in Future.

Roland Head: Kingfisher

B&Q and Screwfix owner Kingfisher (LSE: KGF) has had a bumper two years. Demand for DIY products surged during the pandemic, as many of us spent more time at home.

In my view, the events of the last 18 months have accelerated the group’s much-needed turnaround and clarified its strategic direction.

Home improvement is a lifelong habit for most homeowners and a growing number of renters. But demand could slow as life returns to normal, so Kingfisher needs to show it can retain its new-won customers. If it does, I think it could do well.

Roland Head does not own shares in Kingfisher.

Victorian Plumbing

I took an initial look at Victorian Plumbing (LSE: VIC) back in June. At the time, the UK’s leading online retailer of bathroom products and accessories had just enjoyed a successful IPO. The shares had jumped from 262p to as high as 341p. Today, the very same stock trades 44% below that peak. What’s going on?

Well, as I noted back then, the company was coming to market during a DIY and home improvement boom. Many of us had used the multiple UK lockdowns to get our properties in order and/or prepare for more home-working in the future.

Unfortunately, last week’s trading update for the year to 30 September suggested this purple patch might be coming to an end. Despite growing revenue by 29% over the financial year, news of “more subdued market conditions” as Covid restrictions were lifted didn’t impress investors. This is despite the company emphasising that margins “remained strong“ and EBITDA for FY21 would likely be “ahead of market expectations“.

Jitters over global supply chains may also have contributed. Having said this, VIC didn’t help itself here. Reflecting that it had been “proactive” on this issue but providing very little in the way of detail wasn’t really satisfactory.

Even so, the market’s treatment of Victorian Plumbing has been a little too brutal, in my view. I guess this is what happens when a highly-rated growth stock doesn’t execute to perfection.

As things stand, VIC stock trades on 21 times earnings. With global headwinds unlikely to disappear anytime soon, I’m inclined to think that the valuation may still have further to drop. As such, I’m keeping my powder dry. It definitely won’t lose its place on my watchlist though.

Luceco

If Victorian Plumbing’s valuation still appears a little too rich, lighting specialist Luceco (LSE: LUCE) is looking far more palatable. Right now, the near-£500m cap company’s stock changes hands for a little over 15 times earnings. 

Sadly, my bullish call on LUCE just over one month ago wasn’t shared by the market. Despite reporting very decent numbers and raising the interim dividend by 73%, investors have elected to abandon the stock en masse. All told, LUCE shares were down 41% before markets opened today since hitting an all-time high in early September. Then again, they’re still up 41% in the last 12 months. 

In my defence, I questioned whether the lack of buying activity on the day did suggest investors were concerned by the firm’s comments relating to significant cost inflation and supply chain setbacks. Even so, I underestimated just how great this concern was. Some director selling hasn’t helped matters.

Of course, short-term setbacks may be regarded as opportunities for long-term investors such as myself. This remains a quality business, in my opinion. Bar the odd blip, margins and returns on capital have been consistently great. The aforementioned cash returns should also be sufficient compensation while investors await a recovery. How long that recovery takes is debatable, of course. 

Far from switching off from this growth stock, I’d be comfortable starting to build a position today.

I’m also going to take a look at a second unloved stock that’s caught my eye this week. This industrial group’s lost 25% in under one month, but I think it could be a good long-term buy.

What’s gone wrong?

But back to CMC. On 2 September, the business cut its revenue guidance for this year by around 20%. The company says calm conditions in the stock market during July and August caused client trading activity to slump.

It’s not good news, but I don’t think it’s a big surprise either. CMC and its rivals have enjoyed record trading conditions over the last year, due to volatile markets and fast-rising share prices.

Those conditions were never going to last forever. But with the shares now trading 16% lower than one year ago, I think there’s an opportunity here.

Are CMC shares a best buy now?

Broker consensus forecasts for CMC’s earnings this year have now been cut by around 20%. However, the shares have now fallen by almost 50% from the record high seen in April and are 30% lower than at the start of September.

The main risk I can see is that the group’s profit slump will be worse than expected. CMC’s headcount has risen over the last year as the group’s expanded. If market conditions stay calm, the company might need to cut back.

However, CMC’s share price crash has left them trading on just nine times earnings, with a dividend yield of 5%. I reckon that’s too cheap.

Indeed, I think these reduced profit forecasts could turn out to be too low. If we get a bout of volatility or a market correction this autumn, profits could bounce back. Overall, I’d be very happy to buy CMC shares for my portfolio at current levels.

A long-term bargain?

And now for that second unloved stock. Luceco (LSE: LUCE) isn’t a household name, but many of us probably have some of its products installed in our home or workplace. This industrial group makes LED lighting and electrical fittings widely used by electricians.

Luceco’s performance has been stunning in recent years — profits doubled last year and are expected to rise by a further 10% this year. However, rising raw material costs and supply chain difficulties are having an impact on profit margins.

Management hopes these cost pressures will be offset by higher sales, but the market seems to have taken a different view.

Luceco’s share price has fallen by more than 20% since the company’s half-year results were published last week. Investors appear to be pricing in a slowdown.

In the short term, I agree this business faces some headwinds. But as a long-term investor, I can see an opportunity here.

Luceco enjoys high profit margins and strong demand for its products. The group is also expanding into new areas, such as electric vehicle charging. I think this stock’s slump could make it one of the best shares to buy now. I’m certainly considering adding a starter position to my portfolio.

Market share gains at this growth stock

Thanks to a “generally favourable” trading environment, the mid-cap announced some very decent interim numbers today. A buoyant residential Repair, Maintenance and Improvements (RMI) market in the UK allowed the lighting manufacturer and distributor to announce a 51.8% rise in revenue over the first half of 2021. Importantly, the £108.2m logged is far higher than that achieved in 2019 (£82.7m). This backs up the company’s belief that it is gaining market share. 

All told, pre-tax profit pretty much doubled to £16.6m over the period. As impressive as this is, the thing that really caught my eye was the 42.5% return on invested capital. In 2020, this was 24.5%. In 2019, this was a little over 18% (which is still impressive). This is great to see. 

Can all this continue?

I suspect it can. New business wins coupled with more people wanting to work from home should do no harm to its chances of continuing to increase revenue and profits. The forthcoming launch of a new EV charger range is another exciting development.

Importantly, Luceco also seems to have the financial firepower to support its growth strategy. Net debt stood at just £24.3m at the end of June.

As a further sign of just how confident management is, there was a 73.3% jump in the interim dividend from 1.5p to 2.6p per share today.

Cost pressures

Given the share price gains over the last year and change, it would be easy for me to assume there’s limited downside with Luceco. However, I certainly don’t think investing here would be risk-free.

As the company itself mentioned today, the pandemic has “brought severe supply chain disruption” and generated “significant cost inflation“. So far, it looks like it’s managed to navigate these choppy waters. However, Luceco did warn that cost pressures would likely continue for a while. This, in turn, could impact margins and may help explain why the share price was flat in early trading. 

Another potential thing for me to be aware of is the possibility that those already invested may decide to bank some profit. This is to be expected. That said, the relative illiquidity of this growth stock (less than 50% is actively traded on the market) could exacerbate any moves downwards. 

Long term winner

The near 150% rise in the Luceco share price over the past year is great evidence to support my belief that snapping up stakes in great businesses for the long term can bring me rich rewards. It certainly feels a lot less stressful than buying a ‘bargain’ stock with weak fundamentals and crossing my fingers!

Speaking of valuation, I’ll need to shell out 24 times forecast earnings for the current year to buy Luceco today. That’s high but not excessive, in my opinion, especially for such a quality operator.

There’s arguably (far) more risk to investing now than last year. However, I do think there are plenty of worse options for my portfolio than this growth stock. 

I first covered the company on 27 May and was bullish on the shares. Since then, the stock has risen by 40%. But the question I now ask myself is, what’s next for the share price?

Well, I’m still bullish on the stock and would still buy today. I reckon the shares could rise further. The firm released its six-month trading update last month and it was positive.

The numbers

As a quick reminder, Luceco is a manufacturer and distributor of wiring accessories, LED lighting and portable power products for a global customer base. It’s not the most exciting of businesses, but it has delivered a strong set of results.

Its trading performance has continued to improve during the period. Revenue increased by 51% to £108m compared to last year and was 31% higher versus 2019.

Sales have been driven by stronger and broader demand than expected. This was seen from the residential sector, where revenue was boosted by new business wins as well as continuing high levels of home improvement activity. Commercial and institutional demand is also improving.

Pressure

So far the UK small-cap company has managed to protect its profit margins from inflationary pressures on raw material and freight prices. Its gross margin over the six-month period came in at 38.5%, which was similar to 2020. But of course, there’s no guarantee this will be maintained.

In fact, the firm estimates that the “annualised cost impact has increased from £15m to £20m” from inflationary pressures. It expects these headwinds will increase in the second half of its financial year, but reckons its actions can broadly maintain the current margin level. If these costs do rise further, this is likely to impact Luceco’s profitability as well as the share price.

Outlook

What I find encouraging is that the board believes it can deliver performance that is ahead of current market expectations. It also expects to improve on 2020 and pre-pandemic levels. This suggests that it thinks the strong demand for its products can continue for the rest of its financial year.

The company has said that it can generate full-year revenue of at least £220m, which is 25% higher than last year and 28% more than 2019. It’s a similar story for profits as well. It reckons that its adjusted operating profit can be at least £39m, which is a 30% increase on 2020 and more than double 2019’s level.

Cash conversion is also expected to improve in the second-half of 2021. The extra inventory that was held up in the first six months to compensate for supply chain disruption is progressively being released.

Should I buy?

As I said, I reckon the UK small-cap stock could rise further from its current level. Especially if the strong demand continues and it can deliver its 2021 guidance.

Inflationary pressures are somewhat concerning. But as economies start to recover from the pandemic, raw material and freight prices should normalise. Hence, I’d buy.

Growing at a fast clip

One business that’s been going great guns recently is Clipper Logistics (LSE: CLG). The self-styled ‘retail logistics expert’ and returns manager has benefitted from the explosion in e-commerce in recent years. Multiple UK lockdowns have further boosted trading (and the share price).

June’s update provided a snapshot of just how well things have been going. Revenue for the full year to the end of April is now expected to come in at £698m. That’s a 39% jump on the previous year, partly due to the company winning new contracts with Joules and JD Sports, among others.

In addition to this, CLG recently signed a three-year extension to its contract with ASOS to handle the latter’s returns on the continent.

Taking all this into account, it’s perhaps no surprise Clipper believes EBIT (earnings before tax and interest) for FY22 and FY23 will now be ahead of consensus estimates “by mid-single-digit percentages in both years.“

Right now, the stock trades on 29 times forecast earnings. That’s pretty high, especially as a rise in unemployment post-furlough could prove a setback for retailers and possibly Clipper. Margins, while improving, are also fairly low in this kind of work.

However, this valuation seems more reasonable when looking at the company’s growth strategy. In addition to building its presence in Europe, the £800m-cap plans to launch a B2B online marketplace in September. This will target buyers from the “highly fragmented” elderly care market. Should it prove successful, Clipper may consider expanding the platform into other sectors.

A rapidly reducing debt pile is another positive.

Lighting up the market

A second company whose share price has been soaring has been Luceco (LSE: LUCE). The company is a market leader in LED lighting, portable power products and wiring accessories. Brands include Luceco LED, BG Electrical and Masterplug.

Half-year results are due early next month. However, we already know from July’s update they’ll be decent. Back then, LUCE announced that demand for its products had been “stronger and broader than expected.“

As a result, it now expects to hit revenue of £108m for the first six months of 2021. Adjusted operating profit is likely to come in at £19m. Both numbers are slight improvements on previous guidance.

To round things off, Luceco said figures for the whole of 2021 would now be ahead of what analysts had been predicting. Indeed, CEO John Hornby expects “another year of record results.” No wonder the shares have been in such great form.

But how much is this in the price? Personally, I don’t think the valuation of 20 times earnings is excessive. As such, I’d feel comfortable adding Luceco to my list of UK shares to buy.

This isn’t to say it’ll be plain-sailing. Despite managing to protect margins so far, “industry-wide” cost inflation looks like being a headwind for a while. The home improvement boom will surely moderate at some point too.

Still, there’s a very secure dividend to compensate for any turbulence.

The checklist

This is what I’m looking for from my share picks:

• Earnings growth: I think the best UK shares display this. Ideally, I want the company to grow its sales and profits by over 10% a year.
• Liquidity: I want to see a well-financed business and a strong balance sheet. I like to see a positive cash position and little or no debt.
• Competitive advantage: I think the best UK shares are those that have a sustainable competitive advantage. For instance, this could be in the form of superior technology or a strong brand.
• Return on capital: this is a measure of quality and it demonstrates how efficiently a company makes money from its capital. I like to see a return on capital figure of over 15%. The higher the better.
• Director ownership: I like to see company management owning a large chunk of its shares. This demonstrates ‘skin-in-the-game’ and aligns directors with shareholder interests.

The UK shares I’d buy today

If I had £5,000 to invest in the best UK shares right now, I’d follow my checklist to narrow down my search. There are thousands of available UK shares on the London Stock Exchange. With £5,000, it’s not practical to invest in too many, so I’d pick just two.

Right now, I reckon the best UK shares include Boohoo (LSE:BOO) and Luceco (LSE:LUCE). Both of these companies seem to meet my checklist criteria.

Ticking the boxes

Online fashion retailer Boohoo is forecast to grow earnings by 35% and I already hold some of its shares. It has no debt and a strong balance sheet. This fast-fashion company owns popular brands including PrettyLittleThing and Karen Millen.

Recently, it bought several brands, including Debenhams. It meets my ‘quality stock’ criteria, offering an excellent 25% return on capital. Lastly, I like that Boohoo’s chairman still owns over 12% of the company.

That said, it suffered major reputational damage with a supply chain scandal last year. There could be a risk to the shares if these issues were to resurface. But I think the company is making great strides to rectify past issues and errors. And with sales still soaring, Boohoo could become a much larger business in a few years, in my opinion.

Shining shares

Luceco is another stock that meets my criteria. Since I last wrote about this cheap share in May, the price has risen by over 20%. But I think it could still be one of the best UK shares right now.

I like that its CEO owns almost 20% of its shares. I also like its double-digit returns and growing earnings. Overall, I think its LED lighting business could thrive over the coming years. In the UK, there’s a strong focus on an environmentally-friendly future. That should bode well for this energy-efficient lighting company.

That said, its business is concentrated in the UK so any economic downturn could affect its prospects. Rising raw material costs could also affect its profit margin. Overall, I think the positives outweigh the risks and I’d consider it for my portfolio.

But there are individual FTSE stocks that have performed even better than their indexes. For example, according to my search, Argo Blockchain and Luceco have performed the best over one year of all the FTSE stocks. 

Argo Blockchain

Argo Blockchain (LSE:ARB) shares are worth 2,957% more now than a year ago. The price of Bitcoin is also impressively up over the year. In fact, the Argo Blockchain share price and the price of Bitcoin move in step with one another (they have a correlation of 0.95 over the last year based on weekly prices). None of this should be surprising as Argo mines Bitcoin and other cryptocurrencies. The price of Bitcoin determines how much Argo’s already mined coins are worth.

I am not one for speculating on the price of cryptocurrencies. However, I would not mind getting exposure to the burgeoning asset class through a well-run cryptocurrency miner like Argo, assuming the price is right. Crypto miners make the blockchain that underlies cryptocurrencies work. They verify transactions and add new blocks to the digital ledger. As compensation, they receive coins and a share of the transaction fees that network users pay. If cryptocurrencies continue to be increasingly used for transactions rather than speculation, then large scale and efficient miners like Argo should have a business. However, I still believe the Argo share price is too high for me right now.

Luceco

The Luceco (LSE:LUCE) share price is up 290% for the year to date. The company is a manufacturer and distributor of high-quality and innovative wiring accessories, LED lighting, and portable power products. During the pandemic, an increase in home improvement purchases offset a fall in commercial orders. As a result full-year, 2020 (year-end 31 December) revenues came in at £176m, which was marginally better than the £172m recorded in the previous year.

Now, marginally increasing revenues, even during a pandemic, might not seem enough to justify a 290% share price rise. But Luceco also increased its operating and net profit margins during 2020. Then there are the first quarter of 2021 results which are better than 2020 numbers (not surprising given the pandemic), but more importantly, 22% ahead of the first quarter of 2019. That suggests that revenue growth for 2021 will be impressive.

I can see revenue growth at Luceco continuing to dazzle as it will benefit from the UK government’s plan to force a shift to LED bulb usage. Luceco shares are trading at around 21 times earnings, which seems reasonable if that first quarter 2021 revenue growth holds for the full year and beyond. Luceco has also been profitable for the last five years. I think Luceco is a quality company, and I am tempted to buy this FTSE share.