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2 tempting small-cap stocks I’d buy for March and beyond

Recruitment firm SThree (STHR) specialises in the science, technology, engineering and mathematics sectors and business is good.

Recruitment companies are cyclical but the market is booming and it’s good to see that SThree has its financial house in order with no long-term debt and around £15m cash on the balance sheet at the last count. 

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When economic cycles become mature, as now, cyclical firms have often seen several years of bumper profits, if they don’t pay down their debts then when will they? Cyclical companies need a strong balance sheet to ride out the next economic soft patch or downturn when it comes and SThree sees clouds gathering ahead, although nobody knows how much it will rain.

Back in January, SThree delivered full-year results with profits ahead of expectations but warned that the heightened level of political and economic uncertainty is the primary feature of the firm’s trading outlook. However, the directors see attractive growth opportunities in the contract market, which is more resilient in periods of economic uncertainty.

Attractive figures

At today’s share price of 312p, you can pick up SThree shares on a forward price-to-earnings (P/E) ratio of just under 13 for 2018 and the forward dividend yield runs at 4.5%. City analysts following the firm expect forward earnings to cover the payout around 1.75 times.

Apart from a modest-looking valuation, reasons for optimism about SThree include a return on capital running at a robust double-digit percentage clip, good cash generation that supports profits, and forecasts for rising revenue and profits over the next two years despite economic uncertainties.

I think SThree looks like a tempting prospect right now but specialist currency manager Record (LSE: REC) sports tempting metrics too. The company has a history of solid-looking cash generation that supports profits well and the return on capital runs around 19%. 

The quality of operations shows in the figures but some decent value seems to be on offer as well. At today’s share price around 39p, the forward P/E ratio is around 11 for the year to March 2019 and the forward dividend yield sits at 4.4%. City analysts following the company expect earnings to cover the payout just over twice. 

In January, with the firm’s third quarter trading update, chief executive James Wood-Collins suggested a positive outlook as political and economic events continue to buffet currency markets around the world driving flows of money into the firm’s multi-product and hedging products. He reckons such volatility and uncertainty in markets continues to provide opportunities for Record to discuss both its return-seeking and risk-reducing products with current and potential clients, which could lead to further business down the road.

Record seems to be trading well and the stock delivers a decent showing on indicators for quality, value and momentum, so I think it’s well worth your own consideration and research today for March and beyond. Sometimes it’s a good thing to buy shares when things seem to be going well for an underlying business rather than waiting for setbacks to knock the share price.

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Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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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