Today I’m looking at two stocks that seem to be on-trend at the moment and are proving to be popular with investors. However, that doesn’t always guarantee a stock’s long-term success. As always, the market could change in an instant.
Having said this, after watching these stocks for a while, I truly believe that they’re worth investing in. With strong track records and what look like bright futures ahead, I’m expecting some great returns from them in the future.
Softcat (LSE: SCT) is an IT infrastructure provider that has enjoyed significant growth this year with the stock climbing a huge 29% already. This is mainly due to increased demand for the hybrid cloud service that the company provides, which has resulted in higher sales and a positive outlook for the year ahead.
What impresses me about Softcat is the very high ROE of 77%. The industry average is just 16% which suggests that the company is of high quality. Are there any dark clouds on the horizon? Maybe Softcat’s debt might affect its prospects? I don’t think so as the company is completely free of net debt. The strong balance sheet and impressive sales certainly give me the confidence needed to invest.
Furthermore, Softcat is currently paying a dividend of 3%. This is a reasonably attractive yield from a growth stock and the company has been paying dividends for three years now. The dividend appears to be sustainable too, with the firm only paying 42% of its profit towards dividends last year, so the payout seems to be significantly covered.
The only real negative I can see is a large P/E of 34, which suggests I’d be paying top dollar for the stock right now. However, with such a positive outlook and reliable dividend, I think it’s worth the investment due to the potential for significant future growth.
Death of the traditional pub?
In the UK we have been seeing many of our favourite pubs closing due to the simple lack of customers. However, JD Wetherspoon (LSE: JDW) hasn’t been feeling the pinch. The company operates nearly 900 pubs around the UK and remains popular despite other traditional pubs suffering.
It has has seen total sales rising 7.4% this year so far, a figure that’s virtually unheard of in the pub industry. What’s even more impressive is that the share price has risen 99% in the past three years. Yes you read that right, 99%. The company has been enjoying significant growth, which is reflected in the high P/E ratio of 19 with a low dividend yield that’s just under 1%.
However, with the company seemingly shrugging off the weak spending environment, with the stock rising strongly this year and with earnings per share growing at an annual rate of 11.5% since 2013, I see a positive outlook ahead. I’m certainly willing to pay the premium for a stock that has consistently outperformed the FTSE 250 by 6% per annum.
I’d be confident to invest in the firm, especially with the founder Timothy Martin having such attention to detail and a rare hands-on approach that has contributed to the company’s success.
fional has no position in any of the shares mentioned. The Motley Fool UK has recommended Softcat. 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.