2 top value Footsie stocks I’d buy right now

These two Footsie shares could post high returns.

| 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.

Finding shares that offer a mix of value, growth and dividend potential can be difficult. After all, such companies often become increasingly popular among investors, and this can lead to their margins of safety being squeezed.

Following the Footsie’s recent bull run, finding such stocks could prove to be even more challenging, with valuations being close to record levels. However, here are two stocks that could offer significant total return potential in the long run.

Improving performance

Reporting on Thursday was support services company Serco (LSE: SRP). The performance of the business in 2017 was relatively impressive, with it able to deliver profitability at the top end of previous expectations. Although sales and profitability were lower versus the prior year, the overall performance of the business in a difficult market was upbeat. This allowed it to reduce net debt to lower levels than had been expected, which could help to improve the sustainability of the business.

The strategy employed by Serco appears to be having a positive impact on its performance. Also providing it with growth potential is its international focus, with the performance of the UK public outsourcing industry coming under pressure during the year. Despite this, the company continues to see opportunities for growth in domestic and international markets in the long run.

Looking ahead, the stock is forecast to post a fall in earnings of 1% this year. However, it is expected to follow this up with growth of 42% next year. The company’s price-to-earnings growth (PEG) ratio of 0.4 indicates that investors have not fully priced in its growth potential. And with dividends due to rise by 150% next year after commencing again this year, the income potential for the stock also appears to be enticing.

Successful turnaround

Also expected to deliver a strong recovery over the next couple of years is fellow support services company G4S (LSE: GFS). It also experienced challenges in recent years, with legacy issues contributing to a fall in profitability. However, under its current strategy it appears to be delivering on its potential, with it returning to positive earnings growth in 2016.

The stock is expected to report a rise in its bottom line of 9% in both of the next two financial years. This puts it on a PEG ratio of just 1.3, which suggests that it offers a wide margin of safety. Certainly, a margin of safety of some sort is understandable, given the difficulties experienced in the UK outsourcing sector in recent months. But such a low valuation at a time when the investment outlook for the wider index is positive could suggest that there is upside potential on offer.

Additionally, G4S has a dividend yield of 3.9% from a payout that is covered almost twice by profit. As such, it could become an even more attractive income play – especially with its financial outlook being relatively positive.

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.

Peter Stephens has no position in any shares mentioned. 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.

More on Investing Articles

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 FTSE income stocks investors should consider buying in April

Income stocks are a great way to build wealth. Our writer details two picks she believes investors should consider snapping…

Read more »

Investing Articles

What might the 5-year price chart tell us about BT shares?

Christopher Ruane considers what clues the long-term performance of BT shares might offer him about business performance and whether to…

Read more »