One share I think has huge potential and one I think could give investors a bloody nose

Get GrooveFunnels For Life While It Is Still In Beta For Free.

Road signs rerouting traffic

Just last month, insurer and asset manager Legal & General (LSE: LGEN) announced plans to invest up to £4bn in a 10-year housebuilding partnership with the University of Oxford. The move is a reflection of a shift away from it being just an insurance company.  Last year, also on the housing theme, it acquired full ownership of CALA Homes, buying the 52.1% of shares it didn’t own in the housebuilder for £315m.

Clearly the insurer is making significant investments. This is partly the result of the fact Legal & General Investment Management (LGIM) – the insurer’s asset management arm – has managed to grow its assets under management beyond the £1trn mark. 

Ongoing success

For investors, I think the future looks bright as more people invest in tracker funds – an area where Legal & General has a strong presence – especially because of the ongoing scrutiny around active fund managers following the Neil Woodford debacle. Then on top of that more people than ever have pension freedoms and are likely to invest in the stock market themselves. These trends should help Legal & General to rake in more cash from investors. 

Pensions from individuals and from businesses is an area again where the asset manager is doing well. The scale of Legal & General means it can keep capitalising on new opportunities, as the partnership with the University of Oxford shows.

I happen to think that a combination of a high yield of 6% along with a P/E of 9 is a recipe for the share price to keep climbing higher because the shares have appeal both for those looking for a company that is undervalued and for those that are looking for income. 

In a very different boat

Construction company Kier Group (LSE: KIE) finds itself in a very different situation. The share price is racing downhill. To try to avoid being the next Carillion it’s cutting jobs and has suspended its dividend for 2019 and 2020. But even these measures may be a case of too little, too late. 

The whole construction market has been operating on precariously thin margins that have seen many companies struggle. Balfour Beatty is bouncing back after some tough years, but Carillion famously didn’t make it. Will Kier pull through? Its construction margins are just 2% and have only risen above that level once in the last five years, and that was to just 2.2% in 2015. With such fine lines between profits and losses, debts become a major issue. On this front, it’s not good news as Kier’s net debt of £186m is greater than its last operating profit of £160m. 

Investors may be tempted to try to catch a share price on the way down in the hope of spectacular returns if a turnaround is successful. But investing history is littered with companies that were too indebted to survive. Whether that is the case with Kier or not is unclear as yet, but I’d say the risk is too great. For me, growing companies like Legal & General offer a far more probable route to achieving financial gains from investing, rather than trying to time your purchase of shares in a declining company like Kier in the hope of some light at the end of the tunnel. 

Investing For Income?

If you’re looking to supplement your salary or pension with regular dividends, then this special free investing report could be a great place to start! ‘A Top Income Share From The Motley Fool UK’ profiles a company that you’re bound to have heard of … but what you may have overlooked is the current near-6% yield on offer that our Motley Fool analyst believes is “comfortably covered by profits and by the firm’s cash flow”. Click here to claim your free copy now!

More reading

Andy Ross owns shares in Legal & General 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.

Get GrooveFunnels For Life While It Is Still In Beta For Free.