The volatility seen in the FTSE 100 since the start of the year has been largely unexpected. Last year was a relatively subdued one for the index, and many investors had felt that 2018 could be a case of ‘more of the same’.
However, while the index is only down by just 75 points versus its starting price in 2018, this hides the story of volatility that has been present in recent months.
While this may not seem to be a sound time to buy shares, since paper losses cannot be ruled out in the near term, in the long run there could be significant total returns on offer. As such, these two stocks could be worth a closer look.
Reporting on Monday was software and IT services business Sanderson Group (LSE: SND), with a trading update for the first half of its financial year. During the period it expanded through the acquisition of Anisa Group for an enterprise value of £12m. So far, integration has been successful and the company’s Enterprise division has been enhanced in terms of size and scale.
The performance of the company during the six-month period has been ahead of expectations. Revenue and profit have both grown by over 30% during the period, with the company continuing to focus on building recurring revenues including subscription, cloud and managed services revenues. And with sales order intake continuing to be strong and the company’s order book being 15% ahead of the same point last year, its prospects appear to be bright.
Looking ahead, Sanderson Group is expected to post a rise in its bottom line of 9% in the next financial year. The stock trades on a price-to-earnings growth (PEG) ratio of 1.7 and this suggests that it could generate strong share price growth.
Also offering the opportunity for higher total returns than the FTSE 100 is diversified financial services company Prudential (LSE: PRU). The business is in the process of rationalising its asset base as it seeks to become increasingly efficient and more streamlined within what remains a relatively fast-growing sector.
With Prudential’s bottom line due to rise by 11% in the next financial year and it having a dividend coverage ratio of over three last year, its shareholder payouts have room to expand. In fact, over the next two years it is expected to grow dividend payments at an annualised rate of 8.7% on a per share basis. This puts it on a forward dividend yield of 3% next year, with there being significant scope for further growth in future years.
As such, Prudential could become a more enticing income share. Its exposure to Asia has been a major growth catalyst in recent years and this trend looks set to continue over the medium term. Due to this and the changes it is making to its business model, now could be a good time to buy it.
Peter Stephens owns shares of Prudential. 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.