The Motley Fool

Why IWG plc is set to be a millionaire-maker stock

At a time when the FTSE 100 is trading close to a record high, IWG (LSE: IWG) seems to stand out. The workspace company appears to have a bright future like many of its mid- and large-cap peers. Its bottom line is forecast to grow rapidly over the medium term. However, unlike some FTSE 100 and FTSE 250 shares, it appears to offer good value for money. This could make it a sound investment for the long term.

Of course, it’s not the only cheap stock at the present time. Reporting on Thursday was another company which could also offer a wide margin of safety.

Encouraging performance

The company in question is UK merchant banking group Close Brothers (LSE: CBG). It has made an encouraging start to its financial year, with all three of its divisions showing strong profitability. For example in its Banking division, loan book growth was 1.4%, driven by Property and Premium Finance. Meanwhile, there has been no major change in credit performance or trading conditions.

The company’s Winterflood division has benefitted from continued retail investor trading activity. The Asset Management division was boosted by further strong net inflows as well as positive market movements. Managed assets increased by 6.5%, with total client assets rising by 4.5% versus the end of the 2017 financial year.

With Close Brothers trading on a price-to-earnings (P/E) ratio of just 10.3, it seems to offer a wide margin of safety at the present time. This suggests that while earnings growth may be somewhat lacking in the near term, it could be subject to an upward re-rating over the long run. As such, now could be the perfect time to buy it.

Diverse appeal

Similarly, IWG also appears to have a discount valuation compared to many mid- and large-cap shares. It is forecast to record a rise in its bottom line of 23% in the next financial year. This puts it on a price-to-earnings growth (PEG) ratio of 0.5, which indicates that its shares could move higher after their 20% fall since the start of the year.

The company’s strong profit growth may also provide it with scope to raise dividends at a rapid rate. For example, it may only have a current dividend yield of 2.8%, but shareholder payouts are expected to be covered 2.4 times by profit this year. This should provide the company with scope to raise them over the medium term without jeopardising the financial health of the business. This mix of capital growth and dividend appeal means that the company could be of interest to a wide range of investors.

Therefore, while many shares may seem overvalued at the present time, IWG and Close Brothers appear to have considerable investment potential. Both stocks are cheap and this could enable them to offer index-beating returns over the long run.

Millionaire potential

Of course, finding stocks that are worth adding to your portfolio is a tough task, which is why the analysts at The Motley Fool have written a free and without obligation guide called 10 Steps To Making A Million In The Market.

It's a simple and straightforward guide that could make a real difference to your portfolio returns. It could help you to generate a seven-figure portfolio in the long run.

Click here to get your copy of the guide – it's completely free and comes without any obligation.

Peter Stephens has no position in any shares mentioned. 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.