2 quality, value and dividend stocks I’d buy now

Looking for income and potential growth from quality firms? These two might have what you’re after.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Right now, Produce Investments (LSE: PIL) is trading well, improving its operating strategy and delivering good numbers. Yet the stock’s valuation seems depressed, perhaps a legacy of previous short-term trading challenges.

I think this combination of factors accounts for the steady progress of the share price, which is trending upwards.

Further improvements and growth ahead

The firm describes itself as a leading operator in the fresh potato and daffodil sectors. With September’s final results, chief executive Angus Armstrong said the company delivered a robust performance last year with operating profit lifting more than 14%. 

At today’s share price of 198p, the forward price-to-earnings (P/E) ratio runs at just over eight for 2017 and the forward dividend yield is around 3.9%, with the payout covered more than three times by expected earnings. Cash flow supports profits well and it’s hard to argue that the shares overvalue the firm. 

Yet Produce Investments supplies a commodity product and as such, my guess is that the stock will never achieve a high P/E rating. However, a product recall situation and problems with over-supply in the potato market are among recent challenges that might have suppressed the share price. The directors expect market conditions to remain challenging in the near term but a continuous focus on operational efficiencies and improving the supply chain with retailers is driving good trading right now. 

The directors reckon the company is well placed to deal with ongoing pressures in the market and they are confident they can achieve strong organic and acquisitive growth. Produce investments might be operating a cyclical business, but I think the firm is worth considering as an investment now as it trades in an apparent sweet spot.

Income and operational progress

It’s hard to ignore the ongoing robust operational performances of housebuilding companies and one of the most tempting right now is Redrow (LSE: RDW). 

In this month’s interim results the firm posted chunky double-digit percentage advances in revenue, profits and the dividend. The order book stands at record levels with many sites sold five to six months in advance and the directors predict bumper trading to continue. The recent acquisition of regional housebuilding firm Radleigh Homes, based in Derby, will help Redrow’s growth ambitions.

At today’s share price around 486p, the company trades on a forward P/E ratio of 7.5 or so for the year to June 2018 and the forward dividend yield runs just under 3.5%, with the payout covered almost four times by anticipated earnings. It’s hard to make a case for the shares overvaluing the firm at moment, but my one reservation is that housebuilding is a cyclical business. To me, that means that the valuation should be low when the company is posting high profits and when business is booming.

Nevertheless, since dipping in July on apparent worries about the macroeconomic environment, the shares have been tearing upwards and now stand some 77% higher than last summer’s nadir. Such operational and share-price momentum is encouraging and Redrow strikes me as a very interesting stock right now.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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

More on Investing Articles

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »

Investing Articles

3 ideas to help investors aim for a million-pound Stocks & Shares ISA

The UK has a growing number of Stocks and Shares ISA millionaires, and this plan may be one of the…

Read more »

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »