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

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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.

Another opportunity for 'right now' 

The Motley Fool analysts have pinned down another opportunity after shares went soft for this company

This firm pays a growing dividend covered well by projected earnings. The directors have pushed the dividend higher for several years and that situation looks set to continue.

You can find out more about this firm by downloading the report called A Top Income Share From The Motley Fool. For a short while longer, it's free to do so if you click here.

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.