Momentum investing — the strategy of buying companies whose shares have shown an upwards trend in terms of price — can be a lucrative endeavour so long as current sentiment continues.
With this in mind, here are two mighty mid-caps that have both performed well over the last 12 months and — after today’s results — look set to continue charging ahead for some time to come.
On a roll
Shares in £1.4bn cap pork, poultry, cooked meats and pies supplier Cranswick (LSE: CWK) have rewarded holders handsomely over the past year with a 24% rise since May 2016. Based on today’s preliminary full-year numbers, I wouldn’t bet against more investors taking positions in the stock.
For the year ending 31 March, revenue climbed 22.5% higher to £1.25bn, with like-for-like revenue rising just under 13%. A 49% rise in Far East revenues was a particular highlight, further underlining just how much progress Cranswick is making in developing its export business. While the operating margin dipped slightly, pre-tax profit came in almost 25% higher at £77.5m.
According to the company, these positive numbers reflect a “strong contribution” from the integration of Crown Chicken, acquired by Cranswick last April. The other recent acquisition — pork processing firm Dunbia Ballymena — also performed well.
With a record £47m spent in supporting the growth pipeline, CEO Adam Couch’s bullish tone and belief that the company enters 2017/18 in “excellent shape” was understandable. Aside from today’s robust numbers, however, there are several other reasons to add Cranswick to your portfolio.
While operating margins remain fairly average compared to the market as a whole, the company has a long history of generating consistently decent returns on the money it invests. With only £11m of net debt on its books and excellent free cashflow, Cranswick’s finances are also very much in order.
Even though a 1.6% yield for 2018 will be of little interest to income investors, it’s also worth pointing out that the Hull-based business has consistently raised its bi-annual payouts for many years now. Indeed, today’s recommended 20% hike to the final dividend is indicative of just how confident management feels on the company’s prospects.
Trading on 22 times 2018 expected earnings, Cranswick remains a quality business and, in my opinion, one to hold for the long term.
Shares in home emergency, repair and installation services provider, Homeserve (LSE: HSV) have also shown great momentum over the last year. Priced at 463p exactly one year ago, they changed hands for 700p before today — a corking 51% rise.
In the 2016/17 financial year, the Walsall-based business recorded a 24% increase in revenue to £785m and pre-tax profits of £98.3m — a climb of 19% on the previous year’s figure.
Growth overseas was particularly impressive with record performance achieved in North America. Over the last year, the company has managed to pass the 3m customer milestone, sign up 100 new partners and increase adjusted operating profit by 75% to just over £21m. Customer numbers in France and Spain also rose, by 4% and 7% respectively.
Looking to the future, the £2.2bn cap is expected to post earnings per share growth of 18% next year, leaving the stocks on a P/E of 23. That’s pretty rich by most investors’ standards. Nevertheless, with such superb numbers being revealed today, I think this can be justified. Judging by the 12% jump in its share price this morning, the market would seem to agree.
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Paul Summers has no position in any shares mentioned. The Motley Fool UK has recommended Homeserve. 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.