The Bitcoin price is booming but I’m buying cheap UK shares for the next bull market

Paul Summers
·3-min read
Big Bitcoin logo.
Big Bitcoin logo.

The Bitcoin price is booming. Last Tuesday, the price of a single coin was over $19,000. Anyone who picked up some of the cryptocurrency back in March would be sitting on a gain of roughly 200%.

As a Bitcoin sceptic, am I bothered about missing out? Not in the slightest. Let’s quickly look at some of its ‘qualities’.

  • Bitcoin generates no revenue or profits. Its price is wholly dependent on what someone will pay for it.

  • Bitcoin doesn’t pay out any dividends for those that own it.

  • Bitcoin ‘wallets’ are regularly hacked and emptied.

  • Bitcoin’s price is highly volatile.

  • Bitcoin still hasn’t been widely adopted. Very few people actually use it.

You might say, “What does it matter? Profits are profits!” You’d be right. Then again, I’m a Foolish investor. I’m looking to grow my wealth through investing not speculation. In other words, I pay attention to risk.

And, let’s be clear, the Bitcoin price could still go very wrong from here. Recall that it fell from almost $20,000 in December 2017 to a little over $3,000 a year later. The possibility of it happening again is why I’m more comfortable buying shares in quality UK-listed companies instead.

A better bet than Bitcoin

One position I’ve been adding to in November has been my holding in laser-guided equipment manufacturer Somero Enterprises (LSE: SOM). I thought the shares were a steal back in September and this month’s update supports that view.

Thanks to “an active US market” and“strong contributions from new products”, Somero now expects to exceed its previous guidance for FY20. Revenue is now likely to come at $80m rather than $75m. At $26m, the amount of net cash on its balance sheet is also predicted to be higher. As a holder, this is exactly what I want to hear.

Somero’s share price has almost doubled since hitting a low in March. That’s clearly not as good as the rise in the Bitcoin price but I don’t care. The former’s valuation has grown because the business is recovering. In other words, there’s substance behind recent gains.

What’s more, the shares still look cheap on 11 times earnings. Factor in big dividends, high margins and stellar returns on capital employed (ROCE) and Bitcoin can’t compete with Somero’s quality.

Recovery in sight

Another small-cap UK share I’ve bought more of in November is tableware supplier Churchill China (LSE: CHH). Like Somero, it’s share price has also rebounded since March’s low. In fact, it’s soared almost 80%!

Despite this, I’m not expecting the numbers in its next update to be quite so impressive. Two lockdowns have been a nightmare for the hospitality and leisure industries. A return to the tier system next month is unlikely to make things much easier for restaurants, bars, and hotels — Churchill’s main customers.

Nevertheless, the recent flood of news surrounding promising coronavirus vaccines makes me bullish on the Stoke-On-Trent-based business recovering over time. Scoring well on quality metrics, Churchill is also a prudently managed company with net cash on its balance sheet. Once the pandemic has passed, I think we could see the share price getting back to previous highs. It’s still roughly 35% below where it was in February.

Keep your wobbly Bitcoin price. A slow(er) but sustainable rise in wealth is what I’m looking for.

The post The Bitcoin price is booming but I’m buying cheap UK shares for the next bull market appeared first on The Motley Fool UK.

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Paul Summers owns shares of Churchill China and Somero Enterprises, Inc. The Motley Fool UK has recommended Churchill China 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.

Motley Fool UK 2020