These small-cap growth stocks could still make you incredibly rich

These growth stocks remain bargain buys, says G A Chester.

| 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.

Shares of Carr’s Group (LSE: CARR) are trading 2.8% lower today at 142p after the company released results for its financial year ended 2 September. As the agricultural and engineering group had previously flagged, profits dipped due to soft demand for feed blocks in the US and a major contract delay in its UK engineering business.

Despite occasional profit lumpiness from factors beyond its control, this FTSE SmallCap firm, which is valued at £130m, has nevertheless delivered an impressive annualised total return for shareholders of 12.9% over the last 10 years (compared, for example, with 11.7% from blue-chip luminary Unilever).

Bright outlook

After a challenging year, the 2018 outlook for Carr’s is considerably brighter. In its agricultural division, a recovery in the US started in H2 and improved farmer confidence is evident in the UK. Meanwhile in engineering, the delayed major contract has come through and with the group’s August acquisition of NuVision Engineering also providing a good foothold in US nuclear markets, strong top- and bottom-line growth is forecast.

The analyst at Edison, which counts Carr’s as a client, has upped her normalised earnings per share (EPS) forecast from 11.6p to 12.5p, representing 33% growth on 2017’s depressed EPS. This forecast puts Carr’s on an undemanding price-to-earnings (P/E) ratio of 11.4 and a price-to-earnings growth (PEG) ratio of 0.35, which is deeply on the ‘value’ side of the PEG ‘fair value’ marker of one.

A forecast well-covered dividend of 4.2p, giving a yield of close to 3%, adds to the value on offer and I rate the stock a ‘buy’.

Re-rating

Also offering great-value growth, in my view, is AIM-listed but long-established M. P. Evans Group (LSE: MPE). At a share price of 820p, this palm oil producer from plantations in Indonesia is valued at £450m.

You’ll probably recall that the market re-evaluated Unilver’s shares after the Anglo-Dutch group rejected a bid from Warren Buffett-backed Kraft Heinz earlier this year. A similar thing happened with M. P. Evans. The value of the London-listed company was markedly lower than that afforded similar firms listed in Asia and a bid came in from a Malaysian conglomerate at 640p a share, followed by an improved offer of 740p. The board, backed by major shareholders, rejected the offer, saying it “very substantially” undervalued the company.

Still undervalued

While the shares are now up to 820p, I believe M. P. Evans remains undervalued. For one thing, an independent assessment of its assets, which it commissioned at the time of the bid, gave its equity an implied value of 1,082p a share. For another, the current price looks to markedly undervalue the EPS growth in the offing. The consensus forecast is for a 39% increase to 31 cents (23.7p at current exchange rates), followed by a 52% rise to 47 cents (35.9p) for 2018. This gives a P/E of 34.6, falling to 22.8 and an attractive 2017/18 PEG of 0.44.

With additional value from a running dividend yield of 2.2% (excluding special dividends) and the board committed to paying “enhanced dividends,” this is another growth stock that looks very buyable to my eye.

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.

G A Chester has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. 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

Investing Articles

A 9.6% yield but down 14%! Should I consider this FTSE gem for my dividend portfolio?

There are several things to consider when looking for FTSE shares with dividend potential. Here, our writer outlines his evaluation…

Read more »

Young Asian man shopping in a supermarket
Investing Articles

I’d shun Lloyds Banking Group and consider this stock for passive income instead

This company's dividend record knocks spots off Lloyds Banking Group's, and it looks like decent value now with a yield…

Read more »

Investing Articles

Will the 5.6% BT Group dividend yield grow in 2024?

Zaven Boyrazian explores whether BT Group can continue hiking its dividend and if the telecoms giant belongs in his income…

Read more »

Investing Articles

FTSE 100’s near a 52-week high, but this stock’s still dirt cheap!

The FTSE 100's on the rise, but not all stocks have been so fortunate. Here’s one company that got left…

Read more »

Investing Articles

Is this ‘secret weapon’ a multi-billion pound reason to buy Lloyds shares?

Dr James Fox explains how Lloyds shares could rise even higher as the bank's 'strategic hedge' is likely to boost…

Read more »

Smiling senior white man talking through telephone while using laptop at desk.
Investing Articles

3 of the best penny stocks for growth, dividends, and value!

Looking for top penny stocks to buy? Royston Wild believes these UK small-cap shares could prove lucrative investments in the…

Read more »

Investing Articles

How I’d aim to turn an empty ISA into £275k by purchasing cheap shares this summer

Harvey Jones is taking advantage of the summer stock market lull to buy cheap shares and build a high and…

Read more »

Investing Articles

What’s the minimum I need to invest every month to earn a meaningful passive income?

When looking to secure a stream of passive income it's important to be realistic. Our writer investigates a strategy to…

Read more »