Choosing shares with strong share price momentum is a strategy some investors follow. In this article, I’ve picked out three shares I would consider buying. I believe they have good momentum over six months (not based on any technical analysis but just observation) and that they also have really strong long-term prospects.
A share with a lot of potential
Shares in Somero Enterprises (LSE: SOM) have been doing pretty well. In six months, they’ve risen 37%. Over the last 12 months, they’ve more than doubled.
Despite that strong rise, shares in the company that creates equipment to lay concrete slabs quicker and with better quality are still very good value. The price-to-earnings (P/E) ratio is around 14 and the price-to-earnings-growth (PEG) ratio is one.
It also delivers on the income side with a dividend yield of over 5%. I think it really is an ideal share for me given that it combines income and growth. With a market capitalisation of £300m there’s plenty of room for growth. I already hold some Somero Enterprises and will use the recent dip to add more.
But it’s worth pointing out that it has experienced a lack of success in China and some other international markets, which is a slight concern. Also, any slowdown in the economy and therefore the construction market could hit the group hard.
Ashtead (LSE: AHT) also operates in the construction industry. It leases construction equipment, mainly in America although it does also have a UK business. So again, there’s a risk specific to the construction market and the wider economy. Ashtead is also more expensive, has more capital expenditure and more debt, which potentially makes it a riskier investment.
But the equipment rental company is a consistent earnings and dividend grower, despite being in a potentially cyclical industry.
That, alongside the economic recovery from the pandemic, may explain why the shares are up 30% in just six months. Over 12 months the increase is 98%.
Also, the company could well be set to benefit from increased infrastructure spending in the US.
The shares aren’t particularly fantastic value at this time, which poses a risk if there’s a slowdown in construction. For me, it’s one to keep on my watchlist and see if an event causes the shares to temporarily slump. At that point, I may dive in.
On a run
Howden Joinery (LSE: HWDN) shares are up nearly a quarter over the last six months and up over 55% over 12 months. The shares probably did well through much of the pandemic because of the trend towards people improving their homes, which is a theme that seems to still have some legs. Recent results showed trading has been strong. Group revenue was almost £785m in the six months to the end of June, compared with £465m a year earlier and £653m two years earlier. If the trend towards home improvement slows then that could hit the shares.
Expansion in Ireland may also help the share price in future by adding to Howden’s growth.
With its high operating margins and returns on capital employed, I feel it displays a lot of signs of being a quality company. That should underpin its share price for years to come. That’s why I’d be happy to add the shares, especially if they fell a little and pulled the P/E below 20.
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Andy Ross owns shares in Somero Enterprises, Inc. The Motley Fool UK has recommended Howden Joinery Group and Somero Enterprises, Inc. 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.