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2 FTSE 100 stocks I’d buy right now

Shares in paper and packaging company Mondi (LSE: MNDI) and engineering firm GKN (LSE: GKN) have both moved up a long way since plumbing the depths in 2009 in the wake of the global financial crisis.

However, despite the distance the shares have travelled, I’d buy into both these companies today because they have decent showings on quality and value. On top of that, the shares seem locked in an up-trend and taken together, such conditions make each investment proposition compelling, in my view.

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Cyclical, but good

There’s cyclicality in both business models for sure, but unless you’re expecting world economies to crash 2008/09-style at any moment, I reckon it’s worth hopping aboard to capture the operational and share-price momentum on offer. 

Both firms trade internationally and my guess is that economic conditions may remain benign for years to come, despite ongoing political upheaval around the world. It also seems clear that Britain’s economy is doing quite well.

Valuations seem compelling. At 1,794p, Mondi trades on a forward price-to-earnings (P/E) ratio of 12.4 for 2017 and the forward dividend yield runs at 3.3%. GKN’s forward P/E rating sits around 10.4 for 2017 and the forward yield is 2.8%. City analysts following these two expect Mondi’s earnings to cover the dividend payout 2.5 times and GKN’s 3.5 times.

With the median forecast P/E ratio of all stocks with estimates on the London stock market running just over 14 and the median forecast dividend yield at around 3.2, neither firm seems troubled by over-valuation at the moment.

Both firms sport a record of steadily rising cash flow from operations that supports profits, and borrowings look under control, suggesting good-quality trading in each case.

Steady progress

In updates issued during October, both firms seemed relaxed about current trading and their outlooks. Mondi said it expects to benefit from stable or higher selling prices for several key products during 2017 following falling prices in 2016. Costs are generally stable and the firm’s ongoing capital investment programme continues to deliver strong returns. Overall, the directors are confident that it will deliver a good trading performance in the year ahead. 

GKN did sound a note of caution saying that, in line with the global economic outlook, the directors see growth rates easing in the firm’s major markets. However, slower growth doesn’t mean ‘no growth’ and City analysts following GKN — who often receive guidance from company directors — are predicting a 7% uplift in revenue for 2017 and a rise of around 12% for earnings per share.

Dividend delight

Both companies have a good record of raising the dividend each year, which I reckon is a good litmus test for the directors’ views on the health of their businesses. I think such progressive dividend policies could continue with Mondi and GKN, which looks set to power the share prices higher, perhaps for years to come, as well as delivering investors a rising income.

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Kevin Godbold owns shares in Mondi. The Motley Fool UK owns shares of GKN. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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