Today Im looking at three companies that appear to hold the promise of a doubling in share price. But which of themmight actually deliver?
Why is it so cheap?
A few years ago, if youd tried to tell people that it would soon be possible to buy shares in Lloyds Banking Group (LSE: LLOY) on a P/E of under 10 with a confident 7% dividend yield on the cards for 2017, youd probably be laughed out of the room.
So why are Lloyds shares so cheap at just 73p? Its partly due to the malaise still affecting the banking business it seems to me that the good banks are being marked down as fiercely as the bad ones. Part of it, too, will be down to the overhang of the governments remaining holding and the effect it could have on the price when its all sold off. But I think Brexit fears must surely be playing their part, too.
I make no secret of my opinion that voting leaveon 23 June would tip us into a new economic mess just as were getting out of the last one, and the Treasury seems to share that view with this weeks warning that we could lose up to 820,000 jobs within two years if it happens. A lot of that damage will surely be done to Londons banking centres.
But Im still happy to hold Lloyds shares, and I can see two crucial things needed for them to come good a remain vote next month, and then the sale of the governments stake. Once those two events are behind us, I can see a doubling in the price as a serious possibility.
Will it ever come right?
A warning this week plunged Marks & Spencer (LSE: MKS) into turmoil again, as the company announced that poor clothing sales coupled with difficult trading conditions will have an adverse effect on profit in the short term. Chief executive Steve Rowe said We are clear on the actions needed to recover and grow Clothing & Home, which is our top priority but come on, M&S has been saying that for years!
Its no surprise that M&S shares plunged on the day, and theyre now down 11.5% since Tuesdays close, to 393p and over the past 12 months, were looking at a 33% loss.
What would it take for the shares to double in price? With forward P/E ratios of around 10 to 11 and predicted dividends at 4.5% and more, theres clearly room for growth. But we need to see the end of the rhetoricand the start of some results in the clothing department before any serious uprating is likely and that could still take some time.
Profit from potash?
Sirius Minerals (LSE: SXX) must be a candidate for doubling, mustnt it? Actually, since this years low point in February, the shares have almost done that already, with a 76% rise to 18.6p. But shareholders will be hoping for a lot more than that in the coming years, having invested at such an early stage of the companys York Potash Project.
There are huge deposits of polyhalite under the North York Moors, and Sirius is hoping to rake in between $1bn and $3bn a year by the time the plant is fully operational. But that isnt expected until 2021, and the funding needed to reach that stage is still to be found.
I reckon Sirius shares will either multi-bag in the next five years, or will collapse if too much dilution is needed to secure the funding though continuing upping of resource estimates puts me in the multi-bagger camp right now.
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Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
