Being able to quit your day job is the dream for many investors. Today, I’m looking at two stocks that might be able to help you accomplish this aim.
Over the past decade, plastics producer RPC (LSE: RPC) has generated outstanding returns for investors. The stock has produced a total return of around 26% per annum since August 2008, turning £1,000 into £13,100.
However, over the past 12 months, shares in the company have struggled as investors have started to voice concerns about the group’s growth strategy. In particular, stakeholders are concerned that RPC has been expanding too fast, and using aggressive accounting to flatter returns from new investments. Some shareholders are also worried about RPC’s role in a world that’s moving away from plastic packaging.
The good news is, the company has not ignored investors. Management is now trimming the group’s business portfolio, exiting non-core businesses, and using the funds generated to expand further into the areas where it has the most experience.
Today, RPC updated the market on this strategy. So far, the firm has divested its foodservice business of Letica Corporation for a total of $95m. Other divestments are also in the pipeline, including the sale of the European injection moulding automotive business.
As well as these asset sales, it also today announced that the company is splashing out just under £34.5m to buy PLASgran, a leading UK recycler of rigid plastics.
In my view, these actions show that management is committed to turning RPC around. There are still some accounting issues to sort out (namely the low percentage of profits that are converted to cash), but it looks as if CEO Dr Pim Vervaat and team are taking shareholder concerns seriously.
As there’s already plenty of bad news factored into the stock (the shares are trading at a forward P/E of 9.7 and yield 4.1%), I reckon it won’t take much for investors to return as concerns about the state of the business peter out. And as RPC returns to growth, based on its past performance, investors should be well rewarded.
The best profit margins
Moneysupermarket.com (LSE: MONY) is another FTSE 250 superstar I’ve also got my eye on.
Over the past five years, shares in the online comparison site have charged higher, registering a total return of 15% per annum. With City analysts expecting earnings per share to rise another 15.2% over the next two years, I reckon this trend isn’t going to come to an end any time soon.
Indeed, even though shares in the business currently trade at a forward P/E of 16.5 (compared to the market average of 13.3), this is a 21% discount to the broader IT sector.
I believe the shares deserve to trade at a premium to the rest of the IT sector. With an operating profit margin of 30% and return on capital employed (a ratio of profit for every £1 invested in the business) of 55%, Moneysupermarket is one of the market’s most profitable businesses, which means it deserves a premium valuation. Management is recycling profits into bolt-on acquisitions to boost growth, and there’s a 3.9% dividend yield on offer.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Moneysupermarket.com and RPC Group. 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.