28 recovery stocks to watch in 2024

The bounceback potential of ASOS (LSE:ASC), Halfords Group (LSE:HFD) and Redrow (LSE:RDW) has been flagged by a City bank after it published a list of 28 recovery picks for 2024.

Peel Hunt’s selection is dominated by building and retail stocks, but also includes National Express owner Mobico Group (LSE:MCG), Hochschild Mining (LSE:HOC) and Babcock International Group (LSE:BAB).

• Invest with ii: Open an ISA | ISA Investment Ideas | ISA Offers & Cashback

The list of the mid-cap focused investment bank provides ideas for stocks that are attractive fundamentally and should have passed the nadir in terms of their market conditions.

The selections are generally focused on profit recovery, although Peel Hunt points out that it does not exclusively expect this to happen in 2024.

Its previous year’s list of Value stocks delivered a weighted average return of 23%, comfortably ahead of the 8% of the FTSE All-Share. The best performers were Kier Group (LSE:KIE) and Lookers after share price gains of 81% and 76% respectively, followed by RHI Magnesita  (LSE:RHIM) and InterContinental Hotels Group (LSE:IHG).

The £3 billion-valued Bellway (LSE:BWY) is the biggest stock on this year’s line-up, despite shares posting a stronger second half of 2023 as the mortgage and house price outlook improves.

The UK’s fourth largest housebuilder still trades at a 25% discount to book value, a gap Peel Hunt expects to close as fears around asset write-downs continue to recede.

• Outlook for UK housebuilders in 2024
• My first five years as an ISA investor
• Sector Screener: two property stocks with long-term growth potential

On Redrow (LSE:RDW), it expects the 2024 financial year to be the trough for margins and volumes before a steady rather than spectacular recovery the following year. The bank adds: “Financially, Redrow is in good shape, and is ready to push for growth when conditions allow.”

Whereas shares in the housebuilding sector have rallied in recent months, other stocks with exposure to the potential upturn in activity have yet to see a bounce.

They include the paving firm Marshalls (LSE:MSLH), whose shares posted a flat performance across 2023 and under-performed the building materials peer group by about 10 percentage points.

Operational gearing was painful for the business last year but Peel Hunt estimates that a 20% recovery in volumes over the next two to three years could more than double profits.

It is a similar story at Ibstock (LSE:IBST) after the UK’s leading clay brick manufacturer encountered an approximate 30-35% drop in new house building volumes and 10-12% decline in repair, maintenance and improvement activity.

Peel Hunt forecasts a further fall in profits this year before a recovery in housing volumes, potentially boosted by political change, leads to a medium-term rebound.

The other stocks with a house market focus to feature on Peel Hunt’s recovery list are property agency Savills (LSE:SVS) and the DIY retailer Wickes Group (LSE:WIX).

The bank’s report also highlights the upside potential of a number of struggling retail stocks, including Dr. Martens Ordinary Shares (LSE:DOCS) and the fast-fashion pair ASOS and Boohoo Group (LSE:BOO).

• Share Sleuth: this share trebled, but now it’s time to sell
• 37 growth stocks to own in 2024
• Wild’s Winter Portfolios 2023-24: a 23% profit in two months

Success for ASOS in 2024 is likely to be measured by its performance on stock clearance, cash generation and the speed of the autumn and winter supply chain. However, Peel Hunt also points out that a sale of Topshop would be transformational to the balance sheet.

It has a “Hold” recommendation on ASOS, whereas it sees the potential for Boohoo shares to double to 75p as strategic milestones are ticked off such as a new US warehouse and improvement in gross margin. It also flags the importance of the Debenhams platform, which has been building momentum over the past 18 months.

Working through the hangover of excess stock means sales momentum at Dr Martens is unlikely to turn before autumn. But with a valuation of nine times forward earnings, following a series of US-led profit warnings, the bank believes the shares merit attention.

The strong market position of Halfords in cycling and as the UK’s largest vehicle service, maintenance and repair business is highlighted after Peel Hunt flagged a 47% upside for shares to 275p.

It said: “Halfords is a household name, leading the market in two key segments that have relatively high barriers. The business has traded at a low multiple of 10 times earnings over the last three years, and we feel it is ripe for recovery over the next few years.”

The other retail stock on the list is DFS Furniture (LSE:DFS), which is a “prime buying opportunity” based on expectations for an upturn in sales by the 2025-26 financial year. The shares are backed with an upside of 68% to 200p.

• Insider: £5m windfall for FTSE 100 Lord
• Richard Beddard: a new share for a new year
• Stockwatch: a small-cap software share I’d buy

The recovery path for Mobico is also in the spotlight after earnings downgrades caused by a slow Covid recovery and the impact of driver shortages and wage rises led shares to slide.

Sentiment towards the stock remains extremely negative but Peel Hunt believes this could change quickly if the company can begin to meet and beat forecasts, as it anticipates in 2024. The bank points out that the sharp decline in bond yields should reduce concerns around debt refinancing, while wage pressures are easing.

Babcock International is on the list despite a 40% upturn for shares in 2023 as management refocused the MoD supplier on its core defence activities, strengthened the balance sheet and overhauled risk management.

Peel Hunt said: “Babcock is now a ‘normal’ company and the focus has turned to delivering growth through improved execution.” Based on a current 40% discount to defence and civil peers, the bank sees significant re-rating potential.

The other recovery stocks on its list are Conduit Holdings Ltd (LSE:CRE), Gulf Keystone Petroleum Ltd (LSE:GKP), Impax Asset Management Group (LSE:IPX), ITM Power (LSE:ITM), Mortgage Advice Bureau (Holdings) (LSE:MAB1), NCC Group (LSE:NCC), PureTech Health (LSE:PRTC), Rank Group (The) (LSE:RNK), Shaftesbury Capital (LSE:SHC), Team17 Group (LSE:TM17), Craneware (LSE:CRW), TI Fluid Systems (LSE:TIFS), Warehouse REIT Ord (LSE:WHR) and John Wood Group (LSE:WG.).