2 quality small-cap UK shares investors should consider buying

These two lesser-known UK shares may not possess the same brand power as others, but our writer reckons they’re worth a closer look.

| 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.

I believe there are plenty of quality UK shares that perhaps go under the radar due to a lack of brand power or name recognition.

Two picks I reckon investors should consider buying are Topps Tiles (LSE: TPT) and Michelmersh Brick Holdings (LSE: MBH). Here’s why!

Tiling giant

Topps Tiles is one of the leading tile and flooring firms in the country. It possesses a vast physical presence as well as a long track record. However, it still trades as a small-cap stock.

Should you invest £1,000 in Anglo American 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 Anglo American made the list?

See the 6 stocks

From a bullish view, it’s hard to ignore Topps’ track record, longevity, and leading market position. This could help the stock provide good shareholder value over time. Plus, the business has moved with the times as shopping has evolved. A prime example of this is its online offering to cater for changing shopping habits.

Looking to the future, Topps is in a great position to benefit from interest rate cuts and the growing demand for housing. New and renovated homes need tiles and flooring. Topps can utilise its advantageous market position to grow performance and returns here.

Finally, a dividend yield of 8% looks attractive. However, it has been pushed up by a falling share price linked to economic volatility. Although payment coverage doesn’t look like an issue at present, it’s worth remembering that dividends are never guaranteed.

Reviewing the bear case, the e-commerce boom has welcomed unwanted competitors to Topps’ door. It must navigate higher overheads, such as rental expenses, and this could impact pricing power. Losing market share could hurt performance and returns. Another issue is that of economic volatility – like now – which could mean consumers have less money to spend on home renovation projects.

Despite some potential issues, Topps is a solid business with a good track record and attractive fundamentals.

Bricks and mortar

Michelmersh is a bricks, roofing tiles, and construction products manufacturer.

A big plus point for Michelmersh is the fact it manufactures its own products. This is from its own site in Telford. This can help control costs, as well as quality levels.

Moving on, demand for bricks and construction aggregates could soar in the coming years. This is linked to infrastructure demand increasing in line with a growing population.

Furthermore, demand for homes is outstripping supply. This shortfall needs to be addressed. All of these aspects could translate into boosted performance and returns for Michelmersh shareholders.

From a fundamentals view, the shares offer a solid dividend yield of 4.5%. In addition to this, the shares look decent value for money as they trade on a price-to-earnings ratio of 11.

Taking a look at risks, inflation could hinder Michelmersh as increased costs of raw materials could drive up operating costs. This could mean the firm must increase prices and risk losing customers, which could put its margins under pressure.

Another concern is economic volatility. It could hamper the property market — a bit like now — as well as infrastructure projects being delayed, or even cancelled.

Michelmersh may not possess a powerful brand name or wide reach. However, it has good fundamentals, and bright prospects for the future too.

Of course, there are plenty of other passive income opportunities to explore. And these may be even more lucrative:

We think earning passive income has never been easier

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.

Sumayya Mansoor has positions in Topps Tiles 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

Dividend Shares

Of the 20 highest-yielding FTSE 100 stocks, this is my top pick

This FTSE 100 stock currently offers a yield of 6.4%. But Edward Sheldon believes it’s capable of providing share price…

Read more »

Investing Articles

Could Tesla’s share price jump over the next 12 months? These analysts think so!

Tesla's share price has fallen by almost a third since 1 January. But optimism is high that Elon Musk's company…

Read more »

Investing Articles

I asked ChatGPT where the FTSE 100 will be in 6 months: here’s what it said…

Let’s be realistic, ChatGPT can’t predict the future. But it did do a good job of compiling data from brokerages…

Read more »

Investing Articles

Could the Rolls-Royce share price hit £10?

The Rolls-Royce share price has taken most analysts by surprise with almost everything going right for the British engineering giant.

Read more »

Investing Articles

4 REITs Fools own for passive income

REITs often have higher-than-average dividend yields compared to other stocks, making them a solid choice to consider for passive income…

Read more »

artificial intelligence investing algorithms
Investing Articles

Up 272% in just a year, is Palantir stock just getting started?

This writer recognises that Palantir has grown its business very well -- but does the stock price offer him an…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Up 50%? The Aston Martin share price forecast is mind-blowing! 

If analysts are right, the Aston Aston Martin share price could absolutely rocket in the year ahead. Harvey Jones says…

Read more »

Investing Articles

As the S&P 500 drops, here are 2 Stocks and Shares ISA holdings I’m watching

Our writer has different views on how President Trump's tariffs might affect these two US holdings in his Stocks and…

Read more »