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Two secret growth stocks to watch in 2018

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While Carr’s Group (LSE: CARR) may not be on the tip of the tongue of most growth investors, I believe 2018 may be the year that the company really makes a splash.

And this was underlined by the small-cap’s solid market update on Tuesday, the report sending the share price 12% higher.

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Carr’s, which provides a wide array of agriculture-related goods, said during the 18 weeks to January 6 it was “trading in line with the Board’s expectations for the current financial year.” It added that trading is “significantly ahead of the prior year in both Agriculture and Engineering.”

At its Agriculture division, the Carlisle-based business said UK Agriculture had made a positive start to the year, noting that “improved farm incomes [are] continuing to reinforce farmer confidence.” It added that its retail business had made a solid start to the fiscal year with manufactured feed volumes rising year-on-year, while it also described machinery sales and UK feed block sales as “strong”.

The only blot came in the form of lower fuel volumes which was attributed to “milder weather and wet ground conditions affecting agricultural operations during the early part of the winter.”

At its Engineering arm, it said its UK Manufacturing operation are trading well ahead of the corresponding period a year earlier thanks to improved levels of activity.

A great all-rounder

This fresh trading news confirms the steady recovery in farming markets since the middle of last year, and gives forecasts of chunky earnings growth plenty of credibility

A 33% earnings improvement is forecast for the year ending August and this creates a dirt-cheap forward P/E ratio of 11.8 times. I reckon this figure could be upgraded as conditions improve at home as well as in its US marketplace.

What’s more, Carr’s could also be viewed as a compelling pick for income chasers today. Predictions of meaty profits growth are expected to keep sending dividends skywards and City analysts are predicting a 4.3p per share reward for fiscal 2018, up from the 4p dividend paid last year.

Not only does this projection yield a solid 3.1% but it is also pretty well protected with the target covered 2.8 times by earnings (comfortably above the widely-considered security watermark of 2 times).

Another growth giant

I reckon investors seeking cheap shares with robust earnings and dividend outlooks also need to pay Macfarlane Group (LSE: MACF) a visit.

In 2018 the packaging pay is predicted by the Square Mile to follow an anticipated 31% bottom-line improvement for last year with a 13% profits boost. And this leaves Macfarlane on an undemanding prospective P/E multiple of 11.7 times.

The Glasgow-headquartered business has been able to steadily lift dividends in recent years as earnings have relentlessly risen, and so a projected dividend of 2.1p per share for 2017 is predicted to rise again to 2.3p this year. Consequently Macfarlane sports a very decent 2.9% yield. Dividend coverage, meanwhile, rings in at 3 times.

I believe the outlook for 2018 over at Macfarlane can be described as pretty rosy. In November the business declared that “the momentum achieved in the first half of 2017 has continued in the second half of the year with improving organic growth and the continuing benefit from acquisitions.” This steady progress could also see analysts upgrade their profits projections for the near term and later.

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Royston Wild has no position in any of the 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.

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