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Why I expect these value stocks to rocket very soon

AA: Fair use

If you bought shares in the AA (LSE: AA) this time last year and hoped that they’d have grown in value by now, then you’d be disappointed. But you shouldn’t be. Ok, the share price has barely moved from where it was 12 months ago, but it hasn’t collapsed either. In fact, if you still hold your shares, then you should give yourself a pat on the back for not following the herd and selling in the aftermath of the EU referendum, because that’s exactly what many investors did.

No Brexit impact

The FTSE 250-listed motoring services provider got caught up in the post-referendum sell-off that sent the shares to all-time lows below 210p. Maybe nervous investors thought that things would get so bad that AA members would fail to renew their breakdown cover this year, or maybe they didn’t take the Motley Fool’s advice not to panic too seriously. Nevertheless it certainly gave bargain hunters a chance to swoop in and pick up the shares at knock-down prices.

Three months after the historic vote to leave the EU, the UK’s most popular breakdown cover provider issued its interim results in which it stated that it hadn’t seen any operational impact on the business from any Brexi-related issues. The advice not to panic has always been sound, not just in investing but in all walks of life, and hopefully many novice investors will have taken heed and be better prepared for the next big political or economic shock.

Membership rises

I was particularly encouraged by the company’s revelation that the number of paid personal members had risen in the last three months of its interim reporting period, reversing a somewhat worrying decline. The number of paid members now stands at 3.32m, with an improvement in both retention and new business. There was also a 1.9% rise in average income per member to £157.

Shares in the AA are currently trading well below last year’s highs of 431p, and look good value at a modest P/E rating of just 10 for next year. The company has a progressive dividend policy with a forecast payout of 9.53p per share for the current year, rising to 10.5p for the year to the end of January 2018, giving a healthy prospective yield of 4.1%.

Modest valuation

Meanwhile, another mid-cap firm whose modest valuation has caught my eye is landscaping products group Marshalls (LSE: MSLH). The paving specialist is confident of meeting full-year expectations after delivering a very strong first half, announcing a 21% rise in pre-tax profits earlier this year. The company’s strategy is driven by a focus on innovation and new product development with the aim of extending its product range and providing more integrated solutions to improve the customer experience and differentiate the Marshalls brand.

Analysts expect the Halifax-based firm to grow its bottom line by 23% this year, with a further 16% increase predicted for 2017. The share price has drifted lower this year, and I believe next year’s P/E rating of 14 significantly undervalues the company given the promising outlook.

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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended Marshalls. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.