In the stock market, the best opportunities are often where other investors aren’t looking. And I think this is definitely true when it comes to UK shares. The FTSE 100 and the FTSE 250 get a lot of attention – and rightly so. But beyond this, there are some quality companies I think investors should have on their radars.
Cohort
One example is Cohort (LSE:CHRT). The company is a collection of six smaller businesses focused on defence technology, specifically communications and sensors.
With this type of business, demand is highly sensitive to political (in)stability. Obviously, this isn’t under the company’s control and this creates a risk that can’t be ignored.
The firm’s growth strategy however, has been very successful. It looks to acquire businesses that can complement its existing operations and leave current management teams in place.
This is the kind of model that the likes of Diploma and Halma have applied very effectively. And I think investors should keep an eye on Cohort as a business with a lot of potential.
Porvair
I also think filtration equipment manufacturer Porvair (LSE:PRV) is worth paying attention to. Its products help keep aircraft fuel clean and lab samples free from contaminants.
These industries can be cyclical and this is a risk. With aerospace, for example, investors should pay close attention to the ongoing issues at Boeing and (to a lesser extent) Airbus.
Importantly though, these industries also have high barriers to entry. Both aircraft equipment and laboratory filters need to meet strict quality standards and specifications.
This means customers have limited (or no) choice when it comes to suppliers and this translates into a lot of pricing power for Porvair. In this regard, it reminds me of Rolls-Royce.
Forterra
Forterra (LSE:FORT) is a straightforward business – it makes bricks. And a combination of efficient manufacturing and UK-based production helps it maintain lower costs than its rivals.
The business is naturally vulnerable to downturns in UK construction output. Furthermore, the debt on its balance sheet has been increasing over the last few years, which creates risk.
On the plus side, the government is aiming to boost housebuilding. And this should mean that demand for bricks is set to pick up before too long.
Lower costs than competitors is a big advantage for any business. It’s the advantage Howden Joinery Group has and I think there’s something similar here.
Off-the-grid
With high-quality shares, it’s often hard to find opportunities in stocks that other investors are looking at. These usually present themselves when the market overreacts to some news.
A bit further off the beaten track, however, there are companies that don’t necessarily get the attention they deserve. And that can mean buying opportunities come around more often. I think Cohort, Porvair, and Forterra are stocks investors should think seriously about buying.
At the very least, they should take a closer look and keep an eye on them going forward.
