With global stock markets falling in recent months, the opportunity to buy undervalued shares may be too good to miss. Certainly, further falls could be ahead in the short run, with the prospects for the UK economy in particular being difficult to forecast. However, there are now a number of stocks which could generate high returns in the long run.
With that in mind, here are two industrial engineering stocks that could prove to be worthy buys within an ISA for the long term.
Reporting on Tuesday was rock drilling tools specialist Mincon (LSE: MCON). The company’s 2017 financial year was relatively impressive, with total revenue increasing by 28% versus the prior year. This enabled gross profit to move 24% higher, with net profit up 13% versus the prior year. The company was able to overcome cost pressure to protect its gross margin. And while it has absorbed some higher costs thus far, it expects to see upward price movements for its product range during 2018.
Looking ahead, the company appears to have a solid growth outlook. Its bottom line is due to rise by 45% in the current year. This puts it on a price-to-earnings growth (PEG) ratio of 0.4, which suggests that it could offer growth at a reasonable price.
Furthermore, Mincon also announced the acquisition of Driconeq alongside its update. It is a leading supplier of high quality drill pipes and is being acquired for a total sum of €8m. It has the potential to positively catalyse the company’s future earnings growth rate.
While there may be some challenges ahead in terms of being able to successfully pass higher input costs onto customers, Mincon seems to have a sound underlying business which could deliver improving performance in the long run. As such, it could be worth buying now for the long term.
Also offering upside potential within the industrial engineering sector is pump maker Weir Group (LSE: WEIR). The company had experienced a hugely difficult period, with its bottom line coming under severe pressure in prior years. However, it was able to deliver a return to positive earnings growth in the last financial year.
This is set to become a trend, with further growth anticipated in each of the next two financial years. In fact, Weir Group is expected to report a rise in its bottom line of 40% this year, followed by growth of 15% next year. This has the potential to cause investor sentiment to improve – especially since the company trades on a PEG ratio of just 0.9.
Certainly, the stock is not yet fully recovered from the difficulties it experienced in previous periods, and it will take time for investor sentiment to improve. But with such a low valuation and positive forecasts, it appears to offer significant investment appeal for the long term.
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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has recommended Weir. 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.