In case you hadn’t noticed, Bitcoin’s had a bit of a rally over the last few weeks. The value of a single coin is close to £7,900 as I type. That’s almost 50% up on where it was at the start of May.
That’s not to say this has altered my views on the cryptocurrency one little bit. Even if it ends up eclipsing the highs achieved back in December 2017, I’d still avoid it like the plague.
Ultimately, has no intrinsic value. Banks don’t want to know about it and there’s a real possibility that those holding coins in digital wallets will be hacked and lose their money anyway. It’s a speculator’s dream. I’m an investor.
Nevertheless, Bitcoin’s recent resurgence does make me question whether battered CFD provider Plus 500 (LSE: PLUS) might be about to recover strongly.
Of course, Plus 500 has been anathema to many investors for a while now. The shares fell heavily back in February when it revealed a whole raft of issues to the market.
In recent weeks, however — and coinciding with Bitcoin regaining some positive momentum — the share price has shown a desire to leave the stock market naughty step. That’s not completely surprising since cryptocurrency traders helped the company achieved such big profits a while back.
The question prospective investors needs to ask themselves is whether they have sufficient faith in management to hold the shares, especially after the latter recently disposed of large stakes in the company.
There’s also the problem that — unlike its rivals — Plus 500 has traditionally focused on serving retail clients. That was fine when the world became obsessed with Bitcoin but less so when the hype died down (along with the value of the cryptocurrency).
As such, I suspect higher customer churn and regulations surrounding how much risk they are allowed to take will likely hit the company where it hurts more than others.
The shares might be trading on a seeming bargain-basement valuation of almost 7 times forecast earnings (and sporting an astounding 16% dividend yield) but I’ll be steering clear.
Classic recovery stock
For me, the best choice in the industry continues to be firm IG Group (LSE: IGG), even more so after Wednesday’s actually-quite-encouraging trading update.
While the company continued to see low levels of activity from traders in Q3 and the first two months of Q4, things appear to have picked up in May.
This led IG to predict that revenue will be almost 7% higher in the last quarter compared with the third (£115m vs £108m). Cue a double-digit rise in the share price.
Of course, full-year net trading revenue is still expected to be significantly lower (-17%) than it was the previous year thanks to the aforementioned introduction of new regulations.
Nevertheless, a more positive last quarter coupled with a new strategy from CEO June Felix leads me to suspect that IG has the makings of a classic recovery play.
Once serious volatility returns to the market (and it will), IG should be in a position to reap the rewards from more client activity.
In the meantime, the company has repeated its intention to pay a dividend of 43.8p per share until earnings recover. That’s a yield of 8.2%.
That’s good enough for me and I intend to continue adding to my existing holding over the next few months.
Paul Summers owns shares in IG Group. The Motley Fool UK has no position in any of the shares mentioned. 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.
Motley Fool UK 2019
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