Daily Management Review

Three shares to buy before they go up


10/12/2017


Investors tend to avoid papers traded near the highs. Their fears are justifies: if a stock has grown significantly in recent times, what is the probability that the growth will continue? What if all the potential is spent and further decline is just around the corner? However, sometimes new highs mark only the beginning of a grand takeoff. Another record can be a signal to buy, a sign that the company has changed for the better. Of course, you need to make sure that this is really so. Here are three suitable candidates. Let's try to figure out why shares of General Motors, Celgene and Citigroup are suitable for purchase, despite the recent take-off of quotations.



mattbuck
mattbuck
General Motors

New technologies often lead to destruction of corporations doing business in the old fashioned way. However, in some cases, the victim becomes a hunter, giving investors an excellent opportunity to earn – just like in case with General Motors.

Over the past three months, its shares have risen in price by almost 30%. The one of the oldest automakers is convincingly demonstrating that the new trends in the industry are not having any detrimental effect on it. The company's shares are at the maximum mark since the IPO in 2010 after the announcement of bankruptcy. But this is only the beginning.

Here's what happened to GM in the last year:

Last December, the mass production of the first affordable electric vehicle with a large power reserve (Chevrolet Bolt EV) began. Thus, GM outstripped Telsa by several months (not to mention other manufacturers);

Last week the company confirmed that at least 20 new fully electric models will be available by 2023. The first two will be put into production in the next 18 months;

Last month, Kyle Vogt, GM general manager for the development of self-governing vehicles Cruise Automation, said that the fully autonomous Bolt is ready for mass production. It is expected that the first cars will be introduced the Cruise Automation Park in San Francisco in the next few weeks;

GM controls a significant stake in Lyft, but there are signs that the automaker plans to launch a competing transportation service through a subsidiary of Maven. It seems that autonomous cars will play a key role in this.

Of course, new technologies are expensive. Given the abundance of new start-ups on the market, investors are wondering: where will the company take the money to realize its intentions? However, GM is not worried about this, because classic cars bring an excellent profit due to the high demand for a new line of crossovers. Although recently the corporation's shares have grown significantly, they remain cheap by the standards of fundamental analysis. Their cost is 7.6 times higher than the profit forecasted this year, and the dividend yield is 3.5%. GM expects a brilliant time, and investors still have time to buy its shares.

Celgene 

This year, shares of Celgene biotechnology company jumped by 40% and are now on the verge of another takeoff. They are still cheap with regard to future results.

Over the past five years, the profit of Celgene has increased annually by about 25%. According to forecasts, its average increase amount to be 22% in the next five years. A drug for the treatment of multiple myeloma Revlimid this year can bring the manufacturer more than 8 billion dollars and take a place in the list of the best-selling oncology drugs.

Recently, Celgene launched several other drugs with a potential sales volume of over 1 billion. In the second quarter, Pomalyst and Otezla's sales jumped 23% and 49%, respectively, compared to the same period last year. According to forecasts, in 2017 the proceeds from the sale of these drugs will total more than $ 3 billion. Celgene’s drugs provide a significant cash flow. This, in turn, will allow the company to expand the line of products through a variety of acquisitions, licensing and partnership agreements with small biotech companies. Ozanimod, a medicine for the treatment of multiple sclerosis, has a huge potential, and this is only one in ten developed drugs with a potential demand of more than $ 1 billion a year.

Of course, now Celgene does not look too cheap. The price/earnings ratio (P/E) is 45.4, but evaluation of future results shows that the company's shares are worth every cents - the forward P/E coefficient for 2018 is only 16.4. The abundance of drugs and developments will determine Celgene’s results for at least another 10 years.

Citigroup

After the financial crisis of 2008, many weak banks took time to recover. One such loser was Citigroup. Until 2015, the bank was prohibited from increasing quarterly dividends above $ 0.01 per share. In addition, only at the beginning of this year the company gained sufficient strength to really begin to resume large dividend payments. Such slowness with the recovery means that Citigroup papers have been lagging behind competitors for a long time. Although they currently trade near highs in 52 weeks, its stocks are still cheap and are suitable for purchase.

There are several reasons for optimism about the bank: 

Citigroup shares are still below the book value. For banks that returned to service after the financial crisis, this ratio has long exceeded the unit; 

The current P/E ratio of Citigroup shares does not exceed 15, forward - less than 13; 

Now that the company has strengthened, analysts predict that its profits will be increasing annually by more than 10% in the next five years; 

The price/book value, price/earnings and growth prospects indicate that the company's shares are valued reasonably. Investors should think about buying them, although they are traded near 52-week highs.

source: fool.com






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