The Motley Fool

2 quality and momentum stocks for investors seeking capital gains

Integrated shipping services provider Clarkson (LSE: CKN) delivered decent full-year results today and told us that the shipping market shows “some early signs of a recovery following a sustained period of challenging trading conditions for the industry.”

A strong financial position

The FTSE 250 firm facilitates the market for moving goods around in ships with its shipbroking and ship-related financial, support and research services. I think it’s encouraging that market conditions are only at an early stage of recovery because even now the firm is trading very well. I particularly like the way Clarkson paid off its outstanding loan notes during 2017 to leave the company debt-free.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Such financial strength bodes well for a decent advance in the share price if trading conditions continue to improve. During 2017, revenue rose almost 6% and underlying earnings per share lifted 11%. The directors underlined their confidence in the outlook by pushing up the total dividend for the year by 12%, marking 15 consecutive years of dividend increases – that’s impressive.

The directors said in today’s report that there are a number of exciting opportunities for growth and the creation of shareholder value.” City analysts following the firm expect earnings to increase 21% in 2018 and 11% the next year. Meanwhile, at the current share price of around 3,360p, the forward price-to-earnings (P/E) ratio for 2019 sits just under 21 and the forward dividend yield is almost 2.6%. The valuation looks full, but I think the quality of the underlying enterprise justifies it.

Clarkson looks well placed to ride what could turn out to be a multi-year run of prosperity in the world’s shipping markets, and as such, I reckon the shares look tempting right now. And the quality and operational momentum on offer remind me of FTSE 100 speciality chemicals company Croda International (LSE: CRDA).

A strong defensive element

Since early 2009, Croda’s share price is up more than 800%, driven by steady annual increases in earnings. I think there’s a strong defensive element to the underlying business because it produces ingredients for fast-moving consumer goods in the cosmetic, personal care and pharmaceutical markets, as well as supplying the agricultural and industrial markets.

Revenues, cash flow, operating profit and the dividend all have long records of steady growth, and I think the firm looks well suited to withstand any periods of general economic weakness that may occur in the years ahead. For 2018, the company plans to continue an investment programme aimed at fast-growth technologies, which it expects will drive both organic and acquisition progress.

Croda’s return on capital and its operating margin both run close to a healthy-looking 24%, suggesting a quality underlying business that deserves a higher valuation than many other firms with lower quality operations. Today’s share price of around 4,628p leaves the forward P/E ratio for 2019 sitting just above 22, and the forward dividend yield a little higher than 2%. That valuation seems to accommodate City analysts’ expectations of 7% growth in earning during 2018 and 8% in 2019, but these increases will follow on from several years of growth, and I think the firm’s progress looks set to continue for many years to come. I certainly wouldn’t bet against Croda’s strong operational and share-price momentum now.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

Kevin Godbold has no position in any of the 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.