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2 stocks I’m waiting to pounce on in this market

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Stock market volatility is excellent news for long-term investors as it gives us the chance to buy into stocks that we might have been watching for some time at a discounted valuation. 

It is also good news for stock brokers, who usually see a substantial uptick in commission revenue when volatility increases as investors either buy or sell to take advantage of market movements.

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This means that companies such as Jarvis Securities (LSE: JIM) should see a substantial uptick in their trading revenue and profitability during the first quarter of 2018, thanks to the volatility of the past few weeks.

Continued momentum 

For Jarvis, a successful first quarter will only extend the company’s run of good luck. Over the past five years, the firm has grown reported earnings per share by 14% per annum on average as it’s continued to attract new clients. And it turns out 2017 was “the most commercially successful year at Jarvis by some margin“, according to the full-year results release published today.

In the release for 2017, Jarvis saw a 22% increase in profit before tax and a 22% rise in earnings per share (City analysts had only penciled in EPS growth of 2.4% for 2017). This growth has given management the confidence to increase its dividend payout to shareholders by 34%, reflecting both positive current trading and an equally positive outlook for the group going forward.

Unfortunately, it seems the market doesn’t like these results as much as I do. The shares have been marked down by more than 10% in early deals. However, I believe this could present an excellent opportunity for long-term investors. Indeed, if Jarvis can continue to grow at its current rate, it should continue to generate enormous returns for shareholders going forward. 

Undervalued growth 

Based on current City estimates, shares in Jarvis are trading at a forward P/E of 17. Considering the EPS figure of 32.4p reported today is 2% above what analysts were expecting for 2018, I believe that this valuation severely understates the firm’s outlook. What’s more, there’s around 120p of cash on the balance sheet. 

These figures imply that the company is trading at a 2017 cash-adjusted P/E of only 11.4, which looks to me to be exceptionally cheap for a firm growing EPS at a double-digit rate.

Another company I’m waiting to buy is Macfarlane Group (LSE: MACF). The business, which designs, manufactures and distributes packaging products, flies under the radar of most investors, but it deserves extra attention.

Over the past few years, this company has gone from strength to strength as it has reinvested cash from operations back into the business. Net profit has grown at a rate of around 12% per annum for the past five years, and it’s increased its dividend distribution every year since 2012. 

At the time of writing, the shares support a dividend yield of 2.1% this year, which isn’t that impressive but they also trade at a forward P/E of 11.9, which looks cheap for a company that has a record of growing earnings at more than 10% per annum. 

Since the beginning of 2013, shares in Macfarlane have returned a total of 222% for investors, excluding dividends. Looking at current City forecasts, I believe that these returns can continue as the company builds on its existing successes.

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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.

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