My favourite FTSE share is up 110% but still dirt cheap with a P/E of 7.7!

Harvey Jones is happy he added this FTSE share to his portfolio last year, just in time to enjoy its recovery. There’s more good news today.

| 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.

Image source: Getty Images

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.

Costain Group (LSE: COST) is rapidly turning into my favourite FTSE share of all. It’s more than doubled in value over the last year and jumped another 4% this morning (21 August) after publishing upbeat first-half results.

The smart infrastructure specialist has given investors a bumpy ride in the past. It was swept up in the wider volatility surrounding the outsourcing sector, which sank Carillion in 2018.

Should you invest £1,000 in Burberry Group Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Burberry Group Plc made the list?

See the 6 stocks

Small-cap growth share

The Costain share price then crashed more than 80% in 2020 as the pandemic disrupted operations and hit profitability. But other problems were self-inflicted. Costain lost £90m following adjustments to its Peterborough & Huntingdon and A465 contracts, plus other exceptional items.

Now it’s going from strength to strength, with its shares up 110.22% over the last 12 months. I bought them on 29 November last year, and I’m personally up 60%, including dividends. It’s one of my star performers.

Created with Highcharts 11.4.3Costain Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Costain has just posted an 8.7% increase in adjusting operating profits to £16.3m for the six months to 30 June. This was driven by an “improved performance in Transportation resulting from a better margin mix derived from our contracts, and increased volumes,” it said.

Adjusted operating margins jumped 20 basis points to 2.5%. Costain expects these to hit 3.5% in 2024 and 4.5% in 2025. They’re still wafer thin, in my view, but at least they’re getting wider (assuming it hits those targets).

First-half revenues actually fell 3.8% to £639.3m, largely due to the completion of certain projects, including the main works at Gatwick station.

Yet the group’s forward work position is now “very healthy” at £4.3bn, following contract wins across all sectors, CEO Alex Vaughan said. He was sufficiently bullish to announce a £10m share buyback, starting with immediate effect. Given that Costain’s market cap is just over £273m, that’s a relatively big deal.

Dividend income too

Costain’s revenues will always ebb and flow, depending on when it’s awarded contracts, and when it completes them. However, that bumper order book gives investors pretty good visibility on future revenues.

The group also remains vulnerable to macro forces such as the state of the economy and government finances. Money is tight, with Chancellor Rachel Reeves recently axing some infrastructure products.

Costain shares still look cheap trading at 7.75 times earnings, despite that long run. Better still, its net cash balance has grown to £166m. That’s just over 60% of its market value, which adds a layer of security.

It earns interest on that cash, which along with its profit increase helped lift adjusted earnings per share 27.3% to 5.6p. The downside is interest payments will inevitably fall as the Bank of England cuts base rates.

The forecast 1.5% yield isn’t earth shattering, but it’s still pretty good given recent share price performance. Shareholder payments are covered 9.1 times by forward earnings, giving plenty of scope for progression.

I’m happy to hold Costain in my self-invested personal pension (SIPP). I expect it to remain a favourite for some time to come.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

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.

Harvey Jones has positions in Costain Group Plc. 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.

Pound coins for sale — 51 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

More on Investing Articles

Investing Articles

At a 52-week low but forecast to rise 73%! Is this growth share the FTSE’s top recovery play? 

This FTSE 100 growth share has taken an absolute beating over the past two years but Harvey Jones says the…

Read more »

Investing Articles

This FTSE 250 share offers a juicy 9.8% yield. Will it last?

This well-known FTSE 250 share has a percentage dividend yield approaching double digits. Should Christopher Ruane add the income share…

Read more »

Investing Articles

Is a £333,000 portfolio enough to retire and live off passive income?

A third of a million pounds can generate a serious amount of passive income, but relying on this sum alone…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing For Beginners

Why FTSE 100 investors should pay attention to ‘Liberation Day’

Jon Smith explains why the upcoming tariff announcement from across the pond could have an impact on the FTSE 100,…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

Here’s why Nvidia stock fell 13% in March

The Nvidia stock price rise was looking unstoppable. Should investors now be wondering if the same might be true of…

Read more »

US Stock

It’s ISA deadline week! Here’s my 3-step game plan

Jon Smith tries to calm the hype around the last minute ISA rush to buy stocks and explains why he's…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

£10,000 invested in BAE Systems shares at Christmas is now worth…

BAE Systems shares have been surging in the FTSE 100 in 2025, driven higher by the wavering US commitment to…

Read more »

Investing Articles

Up 19% in 2 weeks, can the Tesla share price rebound further?

Tesla's first-quarter delivery numbers came out today. Will they help persuade our writer to invest his money at the current…

Read more »