These two FTSE 100 stocks are on fire, their share prices rising by roughly 50% a quarter in the first six months of this year. No other stock has come close to beating them in 2019, and their long-term prospects look pretty hot too.
Regaining its focus
The Micro Focus International (LSE: MCRO) share price tanked at the start of last year, falling from a peak of 2,379p to around 950p. That came after the multinational software and information technology business warned it was cutting its annual revenue forecast following a reduction in licence income.
The underlying problem was the trickier-than-expected integration of its $8.8bn acquisition of Hewlett Packard Enterprise’s (HPE) software assets, which quadrupled the company’s size.
Those who like falling knives will wish they picked up this one, because the subsequent recovery has been pretty steady. And lately, spectacular.
Growth and income
Micro Focus still hasn’t fully recovered though. In February, it reported a 5.3% drop in revenues for the year to 31 October, with pre-tax losses of $78.5m (against $158m profit in 2017). Rather than rising this year, revenue losses are merely expected to slow in 2019, to between 4-6%, which marks an improvement on 7.1% in 2018. We will know more when it publishes its six-month results on 9 July. But investors have been getting in ahead of that, encouraged by generous share buybacks, on course to top $600m.
The £7bn-group still hasn’t recovered all of its losses and trades at a discounted price of 11.2 times forecast earnings. It yields almost 7% with cover of around two. Although we can’t expect another 50% rise in Micro Focus stock in the next six months, this looks like a promising dividend income and growth play for the longer run.
2019’s other FTSE 100 flyer is technology group Halma (LSE: HLMA), which specialises in making products for hazard detection and life protection. It’s also growing by bolting on similar businesses in global niche markets.
Earlier this month, it posted a 13% rise in full-year revenues, with adjusted profit before tax up 15%, and statutory profit before tax up 20%. The £7.7bn-group also delivered 10% organic constant currency revenue growth for the second consecutive year, with particularly strong performances in the US and UK. Europe and Asia-Pacific also performed well.
Promisingly, it ploughs back a lot of its profits into R&D, where spending rose 11% to represent 5.2% of revenues. The group appears to offer strong long-term prospects, with a robust balance sheet and strong cash generation. Fellow Fool Royston Wild is also a long-term admirer of its progressive dividend policy.
Although the forward yield is low at just 0.77%, management did recently hike the dividend per share by 7%, suggesting the problem here is keeping up with a racy share price (up 400% in five years).
Halma has its values in the right place but investors have to pay a premium for success. A forecast valuation of 35.7 times earnings is the result, but if that puts you off, I’d still stick it on your watchlist and see if a market correction softens that a little. Some of you, however, will not want to wait.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Halma and Micro Focus. 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.