The FTSE 100 index might still be trading near all-time highs but this — along with investor optimism — may not last for much longer.
With the triggering of Article 50 getting closer, now might be the ideal time to consider buying into stocks that should be able to ride out any short-to-medium term volatility in the market.
Here are a couple of suggestions of companies you might want to investigate further.
Should you invest £1,000 in Barratt Developments right now?
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A kind of magic
Shares in theme park operator, Merlin Entertainment (LSE: MERL) have been casting a spell over investors recently. So long as momentum hasn’t been lost since last November’s update, I think the company can continue breaking share price highs.
Back then, the Alton Towers owner hailed a strong Halloween period and positive trading at its Legoland parks following “two years of exceptional growth“. Elsewhere, the £5bn cap reported making “good progress” towards its 2020 milestones, with attractions in Dubai and Istanbul both opening towards the end of the year. With results due on March 2, investors will be hoping that the decent profit growth anticipated by management will have been realised.
Trading on 22 times earnings for 2017, Merlin’s stock looks fully valued at the current time. A yield of just 1.6% is also very unlikely to convince income investors to start queuing for the stock. Nevertheless, thanks to its geographical diversity, I still think that the Poole-based company’s shares are a worthy addition to most portfolios.
As the world’s second largest attractions operator behind Disney, any fallout from the triggering of Article 50 is likely to be negligible in my opinion. Indeed, if more families choose to postpone expensive holidays abroad as a result of sterling’s recent weakness and the steady rise in inflation, I can actually see Merlin doing significantly better than many in the run up to our departure from the EU.
An inexpensive treat
Shares in £1.7bn cap cinema operator, Cineworld (LSE: CINE) also performed rather well in 2016. Priced at just over 500p in February last year, they now change hands for 636p, a rise of 27%.
With full-year results less than two weeks away (March 8), I suspect time is running out for prospective investors to grab the shares before their next leg upwards.
Having welcomed more than 100 million people through its doors last year, it’s clear that a trip to the flicks hasn’t lost its appeal. Indeed, its the enduring popularity and relatively low-cost nature of visiting the cinema that lead me to believe that the company should easily be able to negotiate any political or economic events in the year ahead. Similar to Merlin, the fact that Cineworld operates in other parts of the world (Central and Eastern Europe plus Israel) also gives earnings a degree of protection.
But it’s not just Cineworld’s Brexit-related defensive properties that make me bullish on the stock. With a promising list of films scheduled for release during 2017 (including Star Wars VIII, Kong: Skull Island and Beauty and the Beast), I suspect revenue and profits will continue climbing for the foreseeable future.
Trading at 17 times earnings for 2017 with excellent free cash flow and decent operating margins, Cineworld looks fairly priced, in my opinion. There’s even a forecast 3.3% yield on offer, safely covered by earnings.
