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

These two companies have a record of creating value for shareholders and I want to take advantage.

| 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.

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.

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.

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.

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

Close-up of British bank notes
Investing Articles

£8 per year in extra income for life, for each £100 invested today? Here’s how!

Christopher Ruane explains how he would aim to set up extra income streams for the rest of his life by…

Read more »

Photo of a man going through financial problems
Investing Articles

With a £20K Stocks and Shares ISA, I’d target £1,964 in annual dividends like this

With an annual passive income target close to £2,000, our writer explains how he'd put a £20K Stocks and Shares…

Read more »

Illustration of flames over a black background
Investing Articles

Down 63% in 2024, what’s going on with the Avacta (AVCT) share price?

2024 has been a difficult year for many companies in the biotechnology sector, with the AVCT share price down heavily.…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Here’s how I’d invest £800 the Warren Buffett way!

Christopher Ruane learns some lessons from super-investor Warren Buffett he hopes could improve his own stock market performance.

Read more »

British Isles on nautical map
Investing Articles

Michael Burry just bought 175,000 shares in this FTSE 100 company

Scion Asset Management announced a $6.5bn stake in BP this week. But what could Michael Burry be seeing in an…

Read more »

Young Asian woman holding a cup of takeaway coffee and folders containing paperwork, on her way into the office
Investing Articles

£5,000 in savings? Here’s how I’d aim to start making powerful passive income today

With a cash lump sum to invest, this Fool lays out how he'd start making passive income. He also details…

Read more »

Investing Articles

Just released: our 3 top small-cap stocks to consider buying before June [PREMIUM PICKS]

Small-cap shares tend to be more volatile than larger companies, so we suggest investors should look to build up a…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

My best FTSE 250 stock to consider buying now for passive income while it’s near 168p

This is a rare stock with a growing underlying business and a fat dividend yield – it’s worth consideration for…

Read more »