2 top value and income stocks I’d buy in 2018

These 2 small-caps have some highly attractive qualities.

| 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.

Stack of new one pound coins

Image source: Getty Images.

Communisis (LSE: CMS) is, in my view, one of the markets most underappreciated companies. Over the past five years, the group has moved away from its traditional business of print marketing to become an integrated global marketing business. 

As the business has transitioned, earnings have multiplied. For 2017, City analysts are projecting normalised earnings per share of 6.4p, compared to 3.2p for 2012… 100% growth in five years. 

However, despite this rapid growth, the market continues to place a low multiple on the shares. At the time of writing, shares in Communisis are trading at a forward P/E of 11. They also support a dividend yield of 4%. 

On-track for growth 

According to a trading update issued by the firm today, management believes that Communisis is on track to hit City forecasts for the year. The year-end update notes the company “performed well in 2017, with growth in sales and profitability, good free cash flow and a further marked reduction in net debt“. As a result, “the board anticipates that audited results for the year will be in line with expectations.” 

During the period, net debt declined to £24.3m from £30.4m, while the accounting deficit related to the group’s defined benefit pension scheme fell to £38m from £55.5m. And it looks as if Communisis’ buoyant trading is set to continue for the next few years, revealing today that it has expanded “facilities in the North East of England to meet increased demand for fast-turnaround campaign fulfilment“, as well as signing a new five-year contract with a major UK bank client. 

All in all, Communisis is growing, has a bright outlook for growth, and is generating plenty of cash. To add to the investment case, the shares are also trading at an attractive earnings multiple and offer a market-beating dividend yield. This is why I’d buy the stock in 2018. 

Steady recovery 

Communisis’ peer Huntsworth (LSE: HNT) is also on my radar for 2018. Huntsworth is a marketing firm that specialises in healthcare, but management has made some missteps over the past five years. These issues saw the group plunge into a loss of £56m on writedowns for 2014.

Nevertheless, since 2014, Huntsworth has made steady progress streamlining its operations and analysts expect the group to report a net profit (for the first time since 2014) of £18m this year. Net debt at 30 November 2017 was approximately £44m, equating to less than 1.5x net debt to pro forma EBITDA, and below the £75m borrowing limit agreed by creditors.

Like Communisis, Huntsworth also trades at an attractive valuation considering its growth potential. With adjusted earnings per share growth of just under 15% expected for 2017, the shares look cheap, trading at a forward P/E of 13.2 and support a dividend yield of 2.5%.

As the firm continues to reinvest earnings back into its operations (management agreed at least one major acquisition last year), growth should continue. What’s more, now that the company has put its problems behind it, the market might reward the shares with a higher multiple. 

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 considered so you should consider taking independent financial advice.

Rupert Hargreaves owns no share 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

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

2 of the best stocks to buy now with £500

I think that Berkshire Hathaway and Activision Blizzard are two of the best shares to buy today. I think they…

Read more »

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

I bought 10 cheap shares. Here’s what happened next

After recent price falls, we bought 10 cheap shares for extra passive income in future. This mini-portfolio offers a tasty…

Read more »

Close up view of Electric Car charging and field background
Investing Articles

Is now a good time to buy Chinese EV stocks as economic growth slows?

Chinese EV stocks tend to trade at a considerable discount to their US counterparts. And that's one reason I like…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

I’d happily start investing in today’s stock market – here’s why

The stock market has been moving up even as the economy has been looking shakier. Would our writer start investing…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

Up 22% in a month! This FTSE 100 takeover target could rise further

A takeover bid for an FTSE 100 firm is big news. Here's what I'm doing about RS Group shares after…

Read more »

Young female analyst working at her desk in the office
Investing Articles

Income shares could help me turn £300 into £500. Here’s how

Our writer believes investing in the right income shares over the long term could be lucrative. Here is his approach.

Read more »

Bearded man writing on notepad in front of computer
Investing Articles

I bought these FTSE 250 shares for fat dividends!

These two FTSE 250 shares have gained in value since I bought them recently. But I still see these stocks…

Read more »

Shot of a young Black woman doing some paperwork in a modern office
Investing Articles

Should I buy this REIT to add to the others that pay me juicy dividends?

Jabran Khan looks closer at this real estate investment trust (REIT) and decides if he would add the shares to…

Read more »