While share prices have generally risen in 2017 and the FTSE 100 has hit a record high, it is still possible to find bargain shares. In many cases, the companies in question will be experiencing some difficulties and may have relatively high risk profiles. However, with wide margins of safety they could be worth buying for the long run. Here are two stocks which seem to fall neatly into that category.
Recovery prospects
Reporting on Thursday was high performance components specialist Meggitt (LSE: MGGT). The aerospace and defence industry company reported that trading during the first quarter of 2017 was in line with expectations. Its sales increased by 9%, although this was positive due to the effects of currency fluctuations. With those removed, its sales declined by 1% as most of its sales for the full year are expected to be weighted towards the second half of the year.
Within the company’s divisions, its performance was very mixed. While there was positive sales growth for Meggitt’s Civil Aerospace division, its Military and Energy divisions reported disappointing sales falls. Despite this, the company’s outlook within the Military sector could be positive. President Trump is expected to deliver higher spending on defence over the medium term. This has the potential to boost demand for the company’s products and may lead to higher profitability.
With Meggitt trading on a price-to-earnings (P/E) ratio of 12.5, it seems to offer good value for money at the present time. Earnings growth of 7-9% per annum during the next two years would be above the index’s average and could see its shares rise in price from their current level of 465p.
Resilient performance
Also reporting on Thursday was Howden Joinery (LSE: HWDN). Its revenue increased by 3.9% overall and by 2.4% on a same depot basis in the 16 weeks to 15 April. This shows that the company has been able to deliver resilient performance despite some uncertainty since the EU referendum. Furthermore, additional operating costs and currency fluctuations have been offset to some extent by sales initiatives implemented since the latter part of 2016. This should mean that the company’s profitability is in line with previous guidance.
Looking ahead, Howden Joinery is expected to report a fall in earnings of 4% this year, followed by growth of 8% next year. This would represent a relatively strong performance, since the UK economy is expected to experience some challenges as weak sterling causes inflation to bite. With Howden Joinery trading on a price-to-earnings growth (PEG) ratio of just 1.8, the risks ahead seem to be fully priced in.
Therefore, while it may not prove to be a particularly stellar year for the business in 2017, it could be a buying opportunity. At a share price of 463p, it could outperform the FTSE 350 over the medium term – especially since improved financial performance is anticipated next year.
