2 cheap stocks I’d buy right now

Hidden value adds to the attraction of these two growth-and-income stocks, 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.

I reckon FTSE 100 diversified industrials conglomerate Smiths Group  (LSE: SMIN) is too cheap to ignore right now. Its earnings multiple is reasonable and its dividend is decent, but what particularly draws me to the stock is its discount to the sum of the value of the group’s parts.

These same characteristics apply to mid-cap Ocean Wilsons Holdings  (LSE: OCN). The larger of this company’s two subsidiaries is one of the leading port, maritime and logistics operators in Brazil. Its other subsidiary owns an eclectic portfolio of international investments.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

Progress under new management

Smiths Group has five operating divisions that serve diverse markets. Following a change of management in 2015, the company has been rationalising its portfolio to focus on markets with good growth prospects and where it is, or can be, a top three player. To this end, it’s sold nine businesses and bought four over the last two years and reckons the group’s positioning in attractive markets has moved from 60% to 80%.

In the medium term, once its ‘fix-or-sell’ strategy is complete and with the investment it’s been making in its favoured businesses, management is confident the group will achieve organic annual revenue growth above the 3%-4% of its chosen markets. I’ve been impressed with the progress made by the new management so far. The shares reached a high of over 1,800p during the summer and I reckon the current price of nearer 1,500p, which is 15 times current-year forecast earnings with a 3% dividend yield, could prove a bargain, if management delivers on its medium-term target.

Value-unlocking options

It’s also clear that the board of directors isn’t averse to a more radical unlocking of value for shareholders than by the piecemeal disposals seen to date. The group recently discussed (but ultimately turned down) a reported £2.8bn offer for its medical division from US firm ICU Medical. Analysts’ sum-of-the-parts valuations of Smiths Group vary, but the approach by ICU clearly shows there’s value there. The medical division contributed 28% to group revenue last year, while the mooted ICU offer for it was equivalent to 47% of Smiths’ current £5.95bn market cap.

The way I see it, whether management delivers (with or without a major disposal), or whether management falls short and activist investors push through a value-unlocking break-up of the group, the stock is currently cheap and I rate it a ‘buy’.

Additional value

Ocean Wilsons currently trades on a slightly lower earnings multiple and higher dividend yield than Smiths Group — a rating little changed from when my colleague Peter Stephens extolled its capital and dividend growth prospects last autumn. With its main subsidiary (Wilson Sons) listed on the Sao Paulo stock exchange and much of its portfolio of international investments being traded funds (such as Findlay Park American), Ocean Wilsons’ sum-of-the-parts valuation is a fairly straightforward matter. I reckon it’s currently around 1,500p, compared with a share price of 1,045p.

Furthermore, there may be additional value within the Wilson Sons subsidiary. Management is currently looking at strategic options for the container terminal part of the business. This is with a view to maximising shareholder value in light of some recent buyers in the sector willing to pay high prices. However, even if nothing comes of this particular avenue of exploration, Ocean Wilsons is another stock I see as cheap. I’d be happy to buy today.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

G A Chester 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.

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.

More on Investing Articles

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

How I’d apply the Warren Buffett method to buying shares

Learning from billionaire investor Warren Buffett, our writer explains his own approach to investing in shares for his portfolio.

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

This dividend share yields under 1% — but I’d still buy it

This dividend share has a low yield. So why would our writer consider adding it to his income portfolio?

Read more »

Young lady working from home office during coronavirus pandemic.
Investing Articles

Looking for a good share to buy? Here’s how I do it

Here are two approaches our writer uses when hunting for a good share to buy for his portfolio to aim…

Read more »

man in shirt using computer and smiling while working in the office
Investing Articles

One cheap FTSE 100 share I’d buy for a new bull market

This FTSE 100 share is unloved and starting to look seriously cheap, says Roland Head.

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

How I’d invest £500 in UK shares in 2022

Investing a small amount of capital in UK shares can result in high commission costs. Zaven Boyrazian explains how to…

Read more »

Black woman using loudspeaker to be heard
Investing Articles

2 battered FTSE dividend stocks to buy in July!

I'm still searching the FTSE 100 for the best bargains to buy. I think these two big dividend shares are…

Read more »

Woman pulling baffled face
Investing Articles

Can I trust Lloyds’ 6.1% dividend yield?

The Lloyds' share price has sunk in 2022, causing the bank's dividend yield to leap. But can I really trust…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

3 top stocks to buy before the market rebounds

Edward Sheldon highlights three beaten-up stocks he'd buy before global stock markets stage a recovery from their 2022 declines.

Read more »