Is investment about timing? It is not only about timing of course, but timing can be very important. The same share can be a brilliant performer or a total dog for an investor, depending on when they buy or sells it. So when looking for shares to buy, I consider how attractive the business is – but also at what point I would be happy to invest.
Here are two shares on my watchlist that I think are excellent businesses. I would be happy to buy shares next year if their price comes down to what I see as an attractive level.
Dunelm
At face level, Dunelm (LSE: DNLM) might not even seem expensive. After all, its price-to-earnings ratio of 14 is lower than that of some shares I bought this year, such as Diageo.
However, I have been burnt owning retailers’ shares before (such as my stake in boohoo).
Retail tends to be a fairly low profit margin business, so earnings can fall significantly for relatively small seeming reasons. Last year, for example, Diageo’s after tax profit margin was 19%. Dunelm’s was less than half of that, at 9%.
Dunelm’s business is run efficiently, it has a large shop estate, and growing digital footprint and thanks to many unique product lines it can differentiate itself from competitors. Sales have grown considerably in recent years.
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Dunelm is a solid dividend payer too. The yield from ordinary dividends is around 4.1%.
But the company has often paid special dividends, meaning the total yield has often been higher than the ordinary dividend yield alone.
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Still, the Dunelm share price has risen 57% since September 2022.
That looks steep to me given that sales growth in the most recently reported quarter was 3.5% — perfectly respectable in my view, but not spectacular.
A weak economy and increasingly stretched household budgets could eat into sales and profits in 2025, I reckon. If that happens and the share price falls enough, my current plan would be to buy some Dunelm shares for my portfolio.
Nvidia
I reckon it is easy to look at the Nvidia (NASDAQ: NVDA) price chart and immediately think “bubble!”
Indeed, the P/E ratio of 53 offers little or no margin of safety for risks such as a pullback in AI spending once the initial round of big installations currently underway has run its course. That helps explain why I have not bought the shares this year.
Still, that P/E ratio is despite Nvidia stock rising 2,175% in the past five years alone. The price has soared, but so too have earnings.
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Nvidia is not some meme stock without a long-term future. It is a hugely profitable, successful company with a proven business model.
Its competitive moat is also huge in my view – rivals simply cannot make many of the chips Nvidia does even if they want to.
The valuation alone is why I have not bought Nvidia stock this year. It is a share I would be happy to buy (in spades) in 2025 if the price looks more reasonable to me.
