The market crash has given investors an opportunity to pick up some high-quality UK small-cap stocks at discount prices. Three such stocks I’d buy today for the long term are main-market-listed constituents of the FTSE SmallCap index. Their shares are trading between 11% and 38% below their levels at the start of the year.
They’re a diverse bunch, being an agriculture and engineering group, a media firm, and a pubs and hotels company. But I see all three as high-calibre enterprises, currently offering great value for long-term investors.
A resilient small-cap stock
Down 11% year-to-date, Carr’s Group (LSE: CARR) shares haven’t been as badly hit as many small-cap stocks. This is no surprise after a trading update last month. It said: “The group continues to trade through the Covid-19 pandemic with no material financial impact seen to date.”
Its agriculture division is performing ahead of expectations. Its engineering division has seen some temporary interruption to nuclear and defence projects, as well as an indirect impact from the weak oil price. Nevertheless, “overall trading remains in-line.”
In other good news, it said: “Cash levels [are] ahead of the board’s expectations.” Furthermore, it announced it will be paying its first interim dividend (deferred earlier this year) and a second interim payout.
At a share price of 137p, the running yield is 3.5%. The price-to-earnings (P/E) ratio for its current financial year is 12, falling to 10.8 next year. This is cheap for a resilient small-cap stock, in my opinion.
Good value for long-term growth and income
Publisher Bloomsbury (LSE: BMY), whose shares are down 29% year-to-date, issued a trading update last month. For the four months to 30 June, it said it had “experienced strong trading … with year-on-year sales growth of 18% during a period of unprecedented disruption caused by the coronavirus pandemic.”
At the height of lockdown, the company did an equity fundraising. It also decided to pay its final dividend as a bonus share issue. This will dilute earnings per share.
On the other hand, Bloomsbury has substantial cash. It has a successful track record of acquisitions and is considering opportunities. I reckon it could pick up good assets at cheap prices in the current environment.
At a share price of 207p, its forward P/E is 18.2 and its prospective dividend yield is 3.8%. I think we’re looking at a good-value stock for long-term growth and income.
Small-cap stock on the rocks
Shares of pubs and hotels group Fuller, Smith & Turner (LSE: FSTA) have been hardest hit of the three companies. They’re down 38% year-to-date. Of course, this has been one of the industries most severely impacted by Covid-19.
In its annual results last month, the company said it wouldn’t pay a final dividend. It’s a measure of the severity of the impact of the pandemic – but also the quality of Fuller’s underlying business – that this is the first time it has reduced its annual dividend in over 70 years.
More than 75% of its managed pubs and hotels, and almost all its tenanted inns, have now reopened. Nevertheless, we can write off the current year.
Looking ahead to next year, though, I reckon the shares are cheap at 600p. The P/E is 14.2 and the prospective dividend yield is 2.8%. This is another quality business to buy for the long term, in my book.
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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Bloomsbury Publishing and Fuller Smith & Turner. 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.