My top pick for a share that could do well next month is car dealership Vertu Motors (LSE: VTU). There are several factors combining to make me think that October could be a good month for the stock.
A top UK share
The shares are cheap and have got even cheaper. September was not particularly kind to the Vertu Motors share price. That decline potentially lays the groundwork for a bounce-back in October. On a P/E of six and with much of its value backed by physical property, there could be a good margin of safety with this share.
The industry is experiencing exceptional prices, which is a potential ongoing opportunity as semiconductors needed for new cars remain in short supply. This is boosting second hand car values and therefore car dealers like Vertu.
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According to broker Liberum, sales at Vertu will go from £2.55bn this year to £3.90bn by 2023. That to me looks like very solid top line growth for such a cheap company. The company will also move from a net debt to a net cash position in those years.
The group’s property, according to the analysts at Liberum, is worth 61p a share. The analysis has an 80p target price. With the shares trading at the time of writing at about 52p, that’s a pretty comfortable margin of safety, I feel.
I like the management team too. The CEO has been with the company since it was formed. He, along with the chief financial officer (CFO), knows the business and the market inside out and both are well placed to handle the risks facing the car dealership business.
On the downside, the market could continue to punish the shares because it sees the company as being in a market in long-term decline. Operating margins are also very slim, leaving relatively little room for error if costs increase.
Also, returns on capital aren’t particularly high, so compared to other industries this isn’t an obviously massively profitable market. Yet Vertu itself is consistently profitable. That’s why I may add to my holding.
Results incoming
SCS Group (LSE: SCS), the furniture retailer, is another cheap share that I think could do well in October. Its final results are out on 5 October. If these exceed expectations, then it could really help the stock recover from recent falls and set the tone for how the shares do through October as valuations by analysts are upgraded. Of course, the results could also disappoint and the shares could fall further.
Yet the ongoing trend towards home improvement as people work from home is what makes me believe the results could be strong. Plus the retailer has previously revealed it expects to be ahead of market expectations in the full-year results, so that supports my view.
As does the performance at DFS Furniture, which has also been upbeat. Its full-year revenues were up 47.4%. And it said it was experiencing strong demand. So there’s a precedent of strong financial performance from a rival.
Assuming that SCS can deliver a really good set of results, this could see the shares do well in October. But with the share price likely to reflect the results, I’ll wait to see them before deciding whether to buy or not.
