2 stocks looking cheap on sparkling results

Here are two very different shares, looking cheap for different reasons.

| 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.

sdf

I’m looking at results from a number of very different companies today, and here are two that I reckon should serve you well.

All that glisters

It’s a bit risky investing in diamond mining, don’t you think? I’d agree, but that doesn’t mean there aren’t bargains to be had.

Look at Gem Diamonds (LSE: GEMD) for example. Its shares have lost 21% over a very erratic two years, including a 4% fall to 112p on the day 2016 results were released.

On the face of it, the figures don’t look good, with revenue falling by 24%, EBITDA down 39% and pre-exceptional earnings per share down 58%. On top of that, the firm placed its Ghaghoo operation “on care and maintenance” due to the low prices obtained for its diamonds, leading to a non-cash impairment of $176.5m and a reported loss per share of 114.9 cents.

But the company, which focuses on looking for large high-quality diamonds, found five larger than 100 carats during the year (down from 11 the previous year), and 34 with values in excess of $1m each. The haul included an 11.8 carat pink diamond, and the largest was a 160.2 carat white one.

Chief executive Clifford Elphick told us “the supply demand fundamentals for the diamond industry remain strong,” and that’s part of what makes Gem Diamonds look like an attractive prospect to me.

I usually turn my nose up at shiny things that have little or no value other than ‘Ooh, that’s pretty’. But the diamond market is very tightly controlled, dominated by the giant De Beers, which keeps a tight control on supplies to maintain high prices.

With earnings expected to recover strongly in 2018, we’d see a P/E of only 8.5 and an attractive low PEG of 0.2, and that makes me think Gem shares are good value.

Recruitment success

My second pick is recruitment specialist Robert Walters (LSE: RWA), whose shares took a bit of a nosedive when the result of the Brexit referendum became known. It was irrational, with the company having a very wide global reach, and the subsequent recovery means the short-term super bargain is now gone. But are the shares still worth buying?

Going on the long-term quality of the company and on Wednesday’s 2016 results, I’d say yes.

The firm described it as a record performance, highlighting a 26% rise in pre-tax profit to £28.1m, with earnings per share up 34% to 27.7p. And its reach has now extended into four new countries: Canada, India, the Philippines and Portugal. The figures from just about everywhere were up, and 69% of net fee income now comes from outside of the UK.

Chief executive Robert Walters cautioned us about “the unpredictable geopolitical environment,” but reckoned that the firm’s “global footprint coupled with the range of recruitment services we provide positions us well to maximise opportunities for growth as they arise.

The dividend is up 20% to 8.5p, and though we’re looking at only modest yields of around 2% to 2.5%, the cash is very well covered by earnings and is progressive — and a progressive dividend can do a lot better in the long run than a higher dividend today.

Forecasts suggest steady earnings growth over the next two years, which would put Robert Walters shares on a 2018 P/E of under 14. I think that’s cheap.


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.

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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

Female Tesco employee holding produce crate
Investing Articles

Is there any reason NOT to open a Stocks and Shares ISA?

A Stocks and Shares ISA is one of the best ways to grow wealth with tax benefits. But there are…

Read more »

Mother At Home Getting Son Wearing Uniform Ready For First Day Of School
Investing Articles

Want an early retirement for your child? Here’s how a SIPP can help

None of us want our children to be worrying about the future. Dr James Fox explains how a SIPP started…

Read more »

Businessman hand stacking money coins with virtual percentage icons
Investing Articles

Looking for growth, dividends, or value? These 3 investment trusts could be strong options to consider

These three top investment trusts have delivered exceptional double-digit returns in recent years, as Royston Wild explains.

Read more »

View of the Birmingham skyline including the church of St Martin, the Bullring shopping centre and the outdoor market.
Investing Articles

How to create a second income from UK property without purchasing a buy-to-let

Looking to build a second income from property but don’t have the capital for a buy-to-let? Check out REITs, says…

Read more »

High flying easyJet women bring daughters to work to inspire next generation of women in STEM
Investing Articles

In 12 months, a £10,000 investment in easyJet shares could become…

easyJet shares have plunged in value following a profit warning on Thursday (17 July). Can the FTSE 100 travel share…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

This S&P 500 blue chip looks far too cheap to me at $183!

Our writer picks out one high-quality S&P 500 stock that is currently the cheapest among the 'Magnificent 7' group of…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Down 23% today! This one’s stinking out my Stocks and Shares ISA

Our writer's wondering what to do with a problem named Ashtead Technology (LON:AT.) in his Stocks and Shares ISA portfolio.

Read more »

Two male friends are out in Tynemouth, North East UK. They are walking on a sidewalk and pushing their baby sons in strollers. They are wearing warm clothing.
Investing Articles

Down over 20%, should I dump this FTSE 100 dividend stock?

Our writer has been loving the passive income this dividend stock has been throwing off. But does the big share…

Read more »