I think there’s 1 big surprise in this broker’s top 10 FTSE ‘mid-cap’ growth stocks!
UBS, the Swiss-based investment bank, recently updated its list of Buy-rated ‘mid-cap’ FTSE stocks. In the UK, the term’s usually applied to companies with a stock market valuation of £1bn-£5bn. However, the broker appears to have widened this definition to include some larger stocks, and a smaller one too.
But let’s not get distracted by definitions. Instead, let’s take a look at the list, which includes six FTSE 100 stocks and four from the FTSE 250.
| Stock | Market cap (£m) | Current share price (pence) | UBS price target (pence) |
|---|---|---|---|
| Marks & Spencer | 7,762 | 403 | 450 |
| Rightmove | 5,638 | 740 | 835 |
| Beazley | 5,582 | 920 | 1,090 |
| ConvaTec Group | 5,075 | 255 | 375 |
| Endeavour Mining | 4,847 | 2,178 | 2,000 |
| Persimmon | 3,576 | 1,195 | 1,540 |
| British Land | 3,521 | 370 | 465 |
| IG Group Holdings | 3,442 | 1,018 | 1,150 |
| Domino’s Pizza Group | 1,059 | 274 | 380 |
| Trustpilot Group | 834 | 210 | 400 |
Spreading risk
The first thing I’ve noticed is that it covers a range of industries. In my opinion, having a diversified portfolio’s a sensible investment strategy. And even though three of the stocks have exposure to the property market, they’re all operating in different sub-sectors, which helps to maintain some element of diversification.
The list also contains four shares that are trading at — or within 3% of — their 52-week highs.
One of these is Beazley, the specialist insurer. Since April 2024, its share price has increased 41%. But UBS’s expecting this growth story to continue and has set a 12-month price target of 1,090p.
Another stock that’s performed strongly is African gold miner Endeavour Mining. It’s gained from the soaring gold price and has already exceeded the UBS price target. And if the current economic turbulence continues, some experts are predicting that the price of gold could increase from its current level of around $3,300 to over $4,000.
Based on their current (16 April) share prices, if all 10 achieved their price targets, a £10,000 investment divided equally between them would grow to £12,780. That’s an impressive return of 27.8%, ignoring any dividends that might be received.
Not convinced
But there’s one stock on the list that appears out of place to me. Undoubtedly, Rightmove‘s (LSE:RMV) the market leader when it comes to advertising properties for sale. According to independent research, the group has an 80% share of time spent on UK portals. And it scores over 95% for brand awareness among home movers. In addition, the company claims it sells and lets a greater proportion of listed properties than its rivals.
Yet that’s a problem for me. I don’t see where the anticipated growth’s going to come from. If the company meets analysts’ expectations, earnings per share will be 29.12p in 2025. This means the stock’s currently trading on 25.4 times forward earnings.
This seems a lot to me, especially for a business that – in its simplest form — comprises a website. Some of this over-inflated valuation appears to be a legacy of the aborted £6.2bn takeover approach by REA Group, part of Rupert Murdoch’s business empire.
Like UBS, I’m optimistic about smaller UK shares. And I’m positive about the medium-term prospects for the housing market. The anticipated reduction in interest rates, increased availability of mortgages and the government’s emphasis on planning reform, should help all those in the sector, including Rightmove.
Much of the investment bank’s enthusiasm for UK stocks comes from current valuations that it says are similar those at the peak of the pandemic. But this doesn’t apply to Rightmove – its price-to-earnings (P/E) ratio has been rising for the past three years or so — and appears increasingly disconnected from the underlying business. And for that reason, I don’t want to buy the stock.
The post I think there’s 1 big surprise in this broker’s top 10 FTSE ‘mid-cap’ growth stocks! appeared first on The Motley Fool UK.
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James Beard has positions in Persimmon Plc. The Motley Fool UK has recommended British Land Plc, Domino’s Pizza Group Plc, and Rightmove Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
