Have you enjoyed the rally withTasty (LSE: TAST),Dominos Pizza (LSE: DOM),Rentokil (LSE: RTO)andStandard Chartered (LSE: STAN)?
Well, I told yousome time agothat most of these shares could deliveroutstandingreturns!
Is it time to cash in now, though?
Here are a few things you should considerabout these four businesses before making up your mind.
Tasty &Dominos Pizza: Not The Cheapest Way To Dine
Tasty is up 22% this year, and its six-month performance reads +30%. Dominos has risen 17% so far this year, while its performance since mid-October is +44%.Are these two stocks still cheap or have they became a bit pricey? Well,Id likely take some profit on both names if I were invested.
Dominos (1.3bn market cap) has a strong balance sheet, is growing fast in its core UK market and promises higher dividends over time. At 26x forward earrings, however, it looks like itll need lots of organic and inorganic growth to continue to justify such a rich valuation. Higher investments may dilute returns, in my view, and a rising number of competitors offering similarly priced substitutes, particularly in the UK, are a threat to the investment case.
Tasty is a completely different investment proposition, with a market cap of less than 100m. Trading volumes are thin, and you run the risk of holding a rather illiquid assets if you decided to invest in Tasty today. Moreover, the shares trade at more than 30x earnings, which is not an incredibly high multiple for a profitable business at an early stage of maturity, but its search for growth may cost more than in the past.
Rentokil: Low Risk, Low Yield Lower Returns?
Rentokil is up 16.9% this year, and at 139p its stock trades around its five-year highs.Its trailing six-month performance reads +24%.
The more predictable Rentokil becomes, the less likely is that it will be albe to deliver rising returns to shareholders. In March it announced a couple of bolt-on deals as well as a refinancing round that marginally lowers its cost of capital,but whether its rally will continue or not hinges on disposals, which are not easy to carry out. Growth prospects are not incredibly appealing, and the forward yield is below 2%.
Rentokil is now becoming much more predictable. Organic growth is accelerating, returns are improving, cash flow is strong and the group continues to invest in opportunities (bolt-ons and organically), analysts at Royal Bank of Canada pointed out in early March, when their price target stood at 150p, or about 20p above the average price target from brokers.
Id be interested at between 100p and 120p.Lets move on.
Standard Chartered: Dirt Cheap?
Standard Chartered is up 15% this year: new leadershipand targeted action aimed at addressing corporate governance issues have helped the bank deliver a good performance to its ailing shareholders in recent weeks.Still, its one- and two-year performance reads -17% and -32%, respectively. I hear you:Standard Chartered is one of the cheapest bank stocks in the world!
Its appeal mainly resides in the restructuring potential that this Asian bank offers, but I am not entirely convinced that at 1,100p, where it currently trades, the stock is cheap enough to receive attentions from value investors, whod likely need hard evidencethat its core capital ratios are strong enough to support a valuation that isnt far away from fair value, based on the banks assets portfolio.
I am cautiously optimistic about its future, but risks such as a rights issue, higher provisions and a challenging macroeconomic landscape could sink the stock in a flash.
If you are after significant capital gains and a safer yield than that of Standard Chartered, you surely must learn moreabout a few less cyclical stocksthat are not risk-free, but are undervalued and are much more likely to reward you with annual returns north of 10%!
Our top pickspromise growth and yield, and could easilybeat the FTSE 100as well Standard Chartered and Rentokil into 2020 and beyond.Their track records suggest youshould carefullyinvest your savings in some of these names: to find out more,click here right away!
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Alessandro Pasetti has no position in any shares mentioned. The Motley Fool UK has recommended Domino’s Pizza. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.