Could these three stocks really double in value?
12th October 2022 15:21
by Graeme Evans from interactive investor
There are plenty of stocks trading at knockdown prices, and these analysts think there's potential for big gains at this trio.
Three stocks with the potential to double in value have been named on a City’s firm’s “most preferred” list, alongside the FTSE 100-listed pair Ashtead Group (LSE:AHT) and Experian (LSE:EXPN).
Liberum’s recommendations from coverage of more than 300 stocks across 12 sectors also include the FTSE 250’s Trainline (LSE:TRN), food-on-the-go firm SSP Group (LSE:SSPG) and shipping broker Clarkson (LSE:CKN).
The company with the biggest upside potential based on last Thursday’s closing prices is Card Factory (LSE:CARD), which Liberum regards as a “deep value recovery play” as it rebuilds earnings after Covid and benefits from a recent balance sheet strengthening.
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Analyst Adam Tomlinson adds: “Its market-leading value proposition and the needs-based nature of its products provides good resilience.” On a valuation of 3.9 times underlying earnings, he believes there’s material upside based on a target price of 110p.
Ground engineer Keller Group (LSE:KLR) is also backed to more than double in price as Liberum believes it has an “abundance of opportunities”, including for work on LNG facilities and in UK nuclear, after a record first-half order book of £1.6 billion.
Shares trade on 6.4 times forecast 2023 earnings, but Liberum has a target price of 1,340p compared with 606p on Wednesday afternoon.
The third stock backed for big gains is AIM-listed Ilika (LSE:IKA), which has developed miniature solid-state batteries for medical devices. Liberum notes the company, which is also working on larger batteries for consumer and automotive applications, has few direct competitors and could yield transformational upside based on a scale-up to mega-factory scale.
The shares currently stand at 54p but Liberum has a target price of 117p.
The big hitters
The biggest stock on the most preferred list is information and credit checking firm Experian, which is liked for its “good track record through the cycle, long growth runway, attractive returns and big economic moat”.
US dollar strength has resulted in a recent de-rating, with Experian shares trading at the lower end of the cash flow multiple range for FTSE growth stocks and at a discount to Equifax. Liiberum has a price target of 3,500p, which compares with today’s 2,635p.
There’s also support for FTSE 100-listed equipment rental business Ashtead, which has fallen from a multiple of 28 times forward earnings to 13 times as the market’s appetite for growth and cyclicals has weakened.
The shares are sensitive towards confidence in the US economy, but this fails to take into account exposure to a long pipeline of mega-projects.
Liberum said: “We prefer Ashtead as it is overweight in commercial and infrastructure building in the US, where any cyclical weakness will be offset by help from mega-projects and US government largesse.”
Liberum sees an approximate 15% upside to an improved target price of 4,900p.
In the FTSE 250, Trainline has been backed for 470p as Liberum predicts the continued benefit from a structural shift of ticket sales online. Rail volumes also tend to be resilient during recession, while July’s trading update highlighted earnings momentum.
Mid-cap potential
It also regards the Upper Crust and Camden Food caterer SSP Group as an “attractive play” on the long-term recovery in travel, particularly with strong recent trading and £500 million of new contracts being mobilised by 2025. The shares have a 330p target.
A recent de-rating for Clarkson suggests a significant downside risk to earnings estimates, but Liberum argues this is not reflected by shipping markets that remain strong by historical standards.
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Analyst Gerald Khoo said: “In our view, the market is overly fixated on spot charter markets, and the Baltic Dry Index in particular. This overlooks Clarkson’s broad market exposure across almost all shipping segments.”
He has a target price of 4,500p, which compares with 2,700p today.
The other stocks on Liberum’s most preferred list are healthcare firm Medica Group (LSE:MGP), mining stock Trident Royalties (LSE:TRR) and vehicle testing business AB Dynamics (LSE:ABDP).
Its least preferred are Ferguson (LSE:FERG), Naked Wines (LSE:WINE), Abcam (LSE:ABC), Wetherspoon (J D) (LSE:JDW), Antofagasta (LSE:ANTO), Morgan Sindall and International Distributions Services, which is the new name for Royal Mail.
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