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2 top quality and value stocks I’d buy right now

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Specialist staffing company SThree (LSE: STHR) generates around 81% of its revenue abroad and today’s full-year figures show that business remains robust. At constant currency rates, revenue grew 9% compared to a year ago and adjusted profit before tax also lifted 9%.

With all the uncertainties surrounding the Brexit process I find it reassuring that SThree is not over-dependent on economic conditions in Britain in order to thrive. Overall gross profit increased by 4% year-on-year with an acceleration to 8% in the fourth quarter. Digging deeper, that result was driven by an 18% lift in the USA, 9% from continental Europe and a telling 14% decline from the UK and Ireland, suggesting a fragile home market.

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Opportunity in uncertainty

However, I don’t think we’d be seeing such a strong showing on value metrics if there were no uncertainties in the air. Chief executive Gary Elden sounded confident about the outlook saying: “Looking ahead to 2018, the momentum of our Contract business and the strength of our performances in the USA and Continental Europe leave us well-positioned for further growth.” He pointed out that 71% of gross profit now comes from the company’s “more resilient” contract business.

City analysts following the firm expect earnings to increase around 5% in 2018 and 18% in 2019, and I reckon one component of that growth could be recovery in the UK market if Brexit uncertainty begins to wane. Meanwhile, the directors held the dividend firm at last year’s level and today’s share price close to 368p throws up a dividend yield of 3.8% to collect while we wait for further growth to materialise.

In another interesting development, the share price of Conviviality (LSE: CVR) plunged more than 12% this morning as the firm reported reduced earnings with its half-year results. Maybe we are looking at an opportunity to buy into a decent growth story at a better price.

Growing market share

The firm earns its living as an alcohol and impulse products distributor and today reported revenues 9.2% higher than the equivalent period a year ago. However, the gross profit margin is down 0.3% resulting in adjusted profit after tax falling 1.6% and adjusted fully diluted earnings per share falling 5.6% compared to last year.

No one likes to see profits falling, but chief executive Diana Hunter explained that the firm “made deliberate choices to successfully grow market share and enhance the quality of future earnings by agreeing long-term contracts with our larger customers and securing new national account customers.”

I think it’s reasonable to give up a little margin for long-term contract security, and ongoing market share gains could restore profits in the end as volumes increase. The directors seem confident about the strategy, increasing the interim dividend by 7.1%. At today’s share price around 295p, the forward dividend yield for 2018 runs at 4.6% or so, which looks attractive given the progress the firm continues to make with revenue growth. Today’s rebasing of the share price coincides with an increase in contract security for the underlying operations. Slippage in profits could prove to be transitory over the long run, and I reckon ‘right now’ is a good time to examine the case for investing in Conviviality. 

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Kevin Godbold owns shares in SThree but not in Conviviality. 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.

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