A little money can go a long way if you invest in the right company. Splitting £1,000 between these two stocks could prove a rewarding two-way bet.
In its element
FTSE 250 chemicals specialist Elementis (LSE: ELM) is making a splash this morning, its share price up 6.23% on publication of its AGM trading statement headlined “Solid start to the year, confident of further progress in 2018”. The group’s Personal Care division, which manufactures hectorite-based products for the cosmetics market, is enjoying growth across new product categories and geographies. I find this particularly encouraging because although it makes up less than 10% of the business, it enjoys higher margins.
Its Coatings operation is expanding in EMEA and the Americas, with a steady performance in Asia, while its Energy division remains solid despite strong comparatives. Chromium is recovering after exceptional weather conditions at the group’s Castle Hayne plant knocked Q1 output.
Today’s brief statement noted that strong free cash generation continued in Q1 while net debt reduced, helped by the disposal of its Surfactants business in March. “Our financial platform is robust and supportive of future growth and continued shareholder value creation,” the £1.39bn group added.
Elementis is one of the UK’s largest speciality chemicals and personal care businesses, with extensive operations in the US, Europe and Asia. City analysts reckon its earnings per share (EPS) will grow a healthy 13% across 2018, then another 9% in 2019. By then, the yield should climb to 2.6%, which is solid but not extravagant. However, my Foolish colleague Peter Stephens recently noted that Elementis pays out just 43% of profits to shareholders, and could increase this percentage as profits grow. Today’s 2.4% yield is covered 2.2 times, which also suggests scope for progression.
However, I am not the first to spot its potential, Elementis is currently trading at a slightly toppy forecast valuation of 19.5 times earnings.
Information is power
Global information and analytics company Relx (LSE: REL) has had mixed fortunes lately, suffering a 17% share price drop in the autumn. The group was punished by adverse currency movements, a slew of broker downgrades, and worries around its scientific information division, but the response may have been overdone and investors may still have a buying opportunity here.
Relx is a subscription-driven business with a stable customer base across the scientific, legal and insurance markets, giving it strong and steady cash flows. EPS growth looks set to slow after four rampant years but should still clock in at 4% this year and 5% in 2019. By then, the yield should have climbed to a solid 2.9%. Covered two times, there is scope for dividend progression here as well.
Time to Relx
Earlier this month, management reported that year-to-date business trends remain consistent with full-year 2017, while the business is enjoying organic development, and has also completed four acquisitions totalling £668m. It completed £325m of the previously announced £700m share buyback, with the remainder due this year.
Recently patchy share price performance may suggest the company is a victim of its own success, but the sell-off has trimmed its toppy valuation to 18.6 times earnings. Relx is still a little pricey, but a better deal than before.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Elementis and RELX. 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.