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One secret small-cap I’d buy alongside this FTSE 250 growth Goliath

There are plenty of firms around currently struggling to grow earnings at all, let alone deliver double-digit numbers. However, a mid-cap company that could re-enter the FTSE 100 before long and a small-cap that released a trading update this morning have both caught my eye. The former is forecast to post a 34% increase in earnings per share (EPS) this year, and the latter a 38% increase.

Bouncing back

Engineer Weir  (LSE: WEIR) was demoted from the FTSE 100 to the FTSE 250 in 2015 after its shares slumped heavily over a period of 18 months. This was because its biggest businesses serve the mining and oil & gas sectors, where activity was badly hit by the collapse in commodity prices during the period.

However, the subsequent recovery in prices means the future for Weir is now a lot brighter. A trading update and announcement of a major acquisition in April confirmed that the company is bouncing back strongly. Indeed, with its shares trading at around 2,000p and its market cap at over £5bn, continued progress could see it return to the FTSE 100 this year.

The City consensus forecast is for Weir to deliver EPS of 115.9p for the year, giving a price-to-earnings (P/E) ratio of 17.3. This is relatively high compared with the FTSE 100 long-term historical average of 14, but that 34% EPS growth I mentioned earlier puts the valuation in a far more attractive light. The price-to-earnings growth (PEG) ratio is 0.5, which is well to the ‘good value’ side of the PEG ‘fair value’ marker of 1.

Due to the brighter prospects for the business and the low PEG valuation, I rate the stock a ‘buy’, noting also that the dividend — pegged by the board at 44p for the last four years — is forecast to increase to 46.6p this year, giving a handy yield of 2.6%.

Good momentum

Agriculture and engineering group Carr’s (LSE: CARR) today reported a “strong performance” for the 17 weeks to 30 June, with both divisions “trading slightly ahead of expectations.” Surprisingly, the shares fell over 6% to 154.5p when the market opened this morning. I put this down to profit taking, as the shares had a strong run-up to a high of 165p ahead of today’s update. This can happen with smaller companies and Carr’s is a FTSE SmallCap firm with a market value of £141m.

Despite its small size, relative to a giant like Weir, Carr’s has customers in 50 countries around the world. Its agriculture division manufactures and supplies feed blocks for livestock, farm machinery, and runs a UK network of rural stores. Its engineering division specialises in bespoke equipment (notably robotic and remote handling equipment) for sectors including nuclear, petrochemical and pharmaceutical.

After today’s slight upgrade to expectations for the current financial year (which ends 31 August), I reckon we’re looking at EPS of getting on for 13p, compared with 12.5p when I last looked at the company. This gives a P/E of 12 and when combined with the aforementioned 38% EPS growth, the PEG ratio is an eye-catching 0.3. With good momentum across the business, and a prospective dividend yield of 2.8% also on the cards, this is another stock I rate a ‘buy’.

Capital Gains

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G A Chester 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.