The border between growth shares and income shares can become blurred in times like these. When share prices are depressed, we can see both boosted dividend yields and share valuations. A low price-to-earnings (P/E) ratio is often an indicator of share price growth potential, and that’s what I’m focusing on today.
Hedge fund manager
Man Group (LSE: EMG) investors have actually had a good five years, with the shares up more than 75% over that period, and up 45% over the past 12 months. But that hides a more volatile longer-term ride, and the price was a lot higher in the mid-noughties.
We’re looking at a trailing P/E of only around 8.4 now. The whole investment management business is depressed, with many suffering outflows of funds, and I do think the risks are high for the rest of the year. But in its first-quarter update, Man reported a $3.1bn net inflow, to reach record assets under management.
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Man is also among the companies distributing excess capital via a share buyback programme. And analysts predict a 2022 dividend yield of around 5.5%. Overall, man Group looks like a nice growth buy to me with dividends thrown in. But I do expect volatility.
Housebuilder
I reckon most of the building and construction sector is probably undervalued, as long-term demand for housing seems unstoppable. But I see a competitive advantage for Berkeley Group Holdings (LSE: BKG) in these tough times.
I don’t expect the housing slump that many investors are fearing. Although any lengthy slowdown in house prices could keep the sector depressed for some time. But Berkeley is more of an upmarket builder — it reported an average selling price of £603,000 for the year ended April 2022. That was down from an even higher £770,000 average in 2021, but at this end of the market the property mix can vary considerably from year to year. Berkeley does share the risks of the sector during any potential squeeze, but I suspect its growth potential could be more resilient than most.
Security paper
My final pick is banknote and security printer De La Rue (LSE: DLAR). De La Rue has been in a bit of a transformation phase in recent years, and it’s not through it yet. In May, the company spoke of “headwinds that are anticipated to have an impact on adjusted operating profit in FY23“.
But forecasts suggest a P/E of only around six for the current year, dropping to under five the following year. Why is the company so lowly valued?
The big risk lies in the future of cash. But I don’t hold with these predictions that cash will soon be obsolete. There are huge parts of the world, with the biggest populations, where I just don’t see that as feasible. This is my most speculative growth share pick, and I think it’s also the riskiest. But the shares do look cheap.
All of these shares are risky right now, I think. And I would only buy after doing a good bit more research.
