I’m currently looking for high-yielding dividend stocks to buy at bargain prices. In the stock market downturn, the share prices of many companies have taken a beating. This often results in rising dividend yields as a compensating factor.

Although there’s a risk of falling into a value trap, I think now could be an excellent time to take advantage of discounts on offer. Here are two dividend stocks — one from the FTSE 100 and one from the FTSE 250 — that I consider oversold at present.

Taylor Wimpey

The Taylor Wimpey (LSE: TW) share price is down 35% in 2022 following a difficult six months for developers, including competitors Barratt Developments and Persimmon.

Since reaching a five-year high just before the pandemic crash, the FTSE 100 housebuilder has surrendered over half its gains. Nonetheless, with a 7.4% dividend yield, the current share price of 115p looks tempting to me.

The FY21 results showed a return to strength, albeit not quite to pre-pandemic levels. The company’s operating profit margin was 19.3%, up from 10.8% the year before. Group completions, revenue and pre-tax profit were all considerably above 2020’s figures, but slightly trailed where the business was in 2019.

One highlight for me is the growing cash position. Net cash has consistently risen over the past three years to £837m. In my view, this is good news for the company’s future dividend payments after they were suspended amid the Covid-19 uncertainty.

There are macroeconomic risks facing Taylor Wimpey shares. Interest rate rises are impacting the UK’s mortgage sector. Furthermore, due to a conveyancing logjam, the average completion time has soared to 22 weeks. A housing market slowdown could suppress the company’s share price growth over the coming months. Despite this, I’m still bullish on the long-term prospects for housebuilders.

Talk of 50-year mortgages might be part of the solution to the UK’s housing crisis, but a lack of supply remains the number one challenge in my view. This situation should benefit Taylor Wimpey in the years ahead. I’d buy this dividend stock today.

Micro Focus International

The Micro Focus International (LSE: MCRO) share price has also suffered this year, falling 38%. However, the juicy 8.7% dividend yield offered by this FTSE 250 software management business caught my eye.

The interim results for the six-month period ending 30 April revealed some weakness. Revenue declined 6.8% and adjusted EBITDA was down 9.5%. This caused some jitters, resulting in a 16% slump in Micro Focus International shares on results day.

However, it wasn’t all bad news for this company. A 5.3% fall in operating costs and a $545m reduction in net debt were positive signs for me. What’s more, the group’s policy of declaring a full-year dividend level that’s covered five times by adjusted profit after tax, as well as its strong cash flow generation should ensure future dividend targets are hit in my view.

The software provider has strategic relationships with Amazon, Alphabet and Microsoft. It assists thousands of customers in 180 countries in managing core IT elements of their businesses.

I believe a US stock market recovery could lead to further investment from US tech giants in their partnerships with Micro Focus International. I’ll buy before that happens.

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Charlie Carman has no position in the shares mentioned. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Micro Focus, and Microsoft. 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.

These two FTSE 100 stocks both yield more than 8%, beating the average buy-to-let. They’re a lot easier to buy and manage than bricks and mortar, too, although they aren’t without risks.

Micro men

Software group Micro Focus International (LSE: MCRO) has had a bumpy time lately, as it struggled to swallow its 2017 acquisition, HP Enterprise’s software business. It started the year brightly but has since dimmed, falling 15% in the last three months as investors reacted to chairman Kevin Loosemore’s decision to dump half his stake for £11.6m. He may still hold half his wealth in the company, but it still doesn’t look good.

Micro Focus is nonetheless showing promise, with profits for the six months to 30 April more than doubling from $619.7m to $1.4bn. Revenues dropped 5.3% to $1,65bn but markets took that on the chin as they were in line with guidance.

Stay Focused

One attraction of the Micro Focus share price is its low forecast valuation of just 9.6 times earnings. The current yield is 9.4%, although that is forecast to fall to a still respectable 6%, as the group held its interim dividend at 58.33 cents per share.

The payout has healthy cover of 1.9, while the group’s cash conversion has been strong, with free cash flow of $429.9m in the last six months, double last year’s number. A return on capital employed of almost 60% is also impressive. The group has a market cap of £5.8bn, which makes its net debt of £3.12bn look relatively high. However, it is feeling flush enough to offer $200m of share buybacks over the months ahead, potentially with more to follow.

A new Standard

I’d also like to highlight another high-yielder, asset manager Standard Life Aberdeen (LSE:SLA), which has set itself the task of being “a world-class investment company” but isn’t quite there yet. It also started the year well only to flounder after posting a £31m drop in first-half profits to £280m earlier this month, even though assets under management and administration climbed 5% to £577.5bn.

Stock markets could be in for a bumpy time, which is never good for asset managers, but at least you aren’t overpaying with the stock trading at 13.3 times forward earnings. The Standard Life Aberdeen yield is still forecast to be a dizzying 9%, even if cover is low at 0.9, which means the payout isn’t fully covered by revenues.

And that’s Life

Earnings per share forecasts look flat for the next couple of years, and Roland Head recently struck a sceptical note, arguing that the group’s shift into emerging markets, notably China, isn’t guaranteed to pay off.

The Standard Life Aberdeen yield is still highly tempting. Analysts don’t expect the current payout to rise from here, but they’re not predicting a cut either, so today’s heady income will hopefully endure.

The post Forget buy-to-let! I’m tempted by these 2 high-yielding FTSE 100 dividend stocks appeared first on The Motley Fool UK.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.

To qualify for that accolade, a company needs decent quality and value metrics, and good momentum in the share price, which is usually driven by positive momentum in the underlying operations of the business.

Ongoing indigestion from the HPE business

Indeed, the stock had been recovering after weakness induced by its 2017 problematic acquisition of Hewlett Packard Enterprises’ software business. But on 4 July, the shares began to fall. And on 9 July, the firm released its half-year results report for the six months to 30 April.

The adjusted figures revealed revenue down just over 5% compared to the equivalent period the prior year, but that outcome had been flagged previously so was known by the market. Diluted earnings per share increased just over 8.4% and net debt eased back by a little over 12% to $3,807.5m. There’s nothing much in the figures to explain the more than 20% drop we’ve seen in the share price in July so far.

Chief executive Stephen Murdoch said in the report the company is making progress with its “significant program of work” aimed at fully integrating the HPE Software business“through the sustained application of the Micro Focus business model.” The outlook is positive and in line with earlier guidance. City analysts following the firm expect earnings to advance around 10% for the current trading year to October, and 10% again for the year after.

As I see it, there’s nothing drastic in the report to change the case for investing in Micro Focus International, but it’s clear integrating the old HPE business is more of a mouthful than the management bargained for. There’s even a separate section in the narrative headed ‘integration update’, which reveals: “The complexities of the HPE Software business integration continue to require detailed attention and substantial programme planning and execution.”

However, the directors are “confident” the firm can deliver on its original thesis, which means making the enlarged Micro Focus “an efficient and optimised platform operating at scale with sector-leading margins and the opportunity to grow further through acquisition.”

Did these director share sales rock the boat?

My guess is the thing that rocked the boat was executive chairman Kevin Loosemore’s sale of 650,000 shares for around £11.6 m over the 10 and 11 July. A cynic might assume the move signals pessimism about the short-term outlook. But Loosemore said he wanted to diversify his investments because he is now 60 years old and had previously held all his wealth in Micro Focus shares. Even after selling, around half his “personal wealth remains in the stock.”

I’m inclined to take his comments at face value and don’t believe his selling is anything more than sensible portfolio management. Micro Focus International remains a decent turnaround and growth proposition in my eyes, and the market could just have handed us an opportunity to buy into the story.

The share price stands at 1,678p as I write, which throws up an earnings multiple just below 10 for the current year and a dividend yield close to 5.4%. I think that’s decent-looking value.

The post This FTSE 100 super stock is down more than 20% in July. Time to buy? appeared first on The Motley Fool UK.

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Kevin Godbold holds shares in Micro Focus International. The Motley Fool UK has recommended 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.

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.

Healthy investment

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.

Cleaning up

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.

Here’s a heads-up on three such super stocks I’d be happy to buy right now – two from the FTSE 100 and one from the FTSE 250.

Infrastructure investment

HICL Infrastructure (LSE: HICL) focuses on investing in companies and projects around the theme of infrastructure, as the name suggests. The firm’s market capitalisation close to £2.9bn puts it in the FTSE 250, but the business is growing. Right now, it has around 117 investments in countries such as the United Kingdom, Australia, Canada, France, Ireland and the Netherlands.

Examples of the kind of investment the firm makes include schools, hospitals, roads, rail and facilities for the fire and police services, which is all good everyday stuff capable of generating steady returns for HICL. With the share price close to 160p, the dividend yield is running just above 5%, the price-to-earnings (P/E) rating is around 12, and the shares trade around tangible book value. I think the firm has the makings of a decent long-term hold for me.

Software

International software company Micro Focus International (LSE: MCRO) describes itself as an “infrastructure software company with global scale” and claims to be the seventh largest software company in the world. The share price tumbled last year following a profit warning after the firm experienced difficulty digesting its big acquisition of Hewlett Packard Enterprises’ software business. However, operations appear to have steadied from their wobbles and the share price is bouncing back.

At the recent 1,875p, the share price throws up a forward-looking P/E rating of just under 10 for the current trading year and the anticipated dividend yield is a little under 5%. Despite the come-back, I think the company still displays good value and holding the shares could work out well for me over the long haul.

Private equity and infrastructure investment

3i Group (LSE: III) buys, improves and then sells smaller companies and also makes infrastructure investments, mainly focused on the geographies of northern Europe and North America. Last Thursday’s full-year results report from the FTSE 100 firm revealed another period of decent returns

The outlook is positive, with the company saying in the report it’s positioned with significant “growth potential combined with good defensive characteristics.” The directors are “confident” that the firm’s strategy of using a “disciplined but opportunistic” approach to business will deliver “superior” ongoing returns for shareholders.

I like the tone of the language in the report, especially the use of the word ‘confident’ rather than the wishy-washy ‘convinced’ we often see in director-speak. I think the outlook statement works well with a low valuation to make a convincing case for me to invest here. At the recent share price close to 1,087p, the P/E rating runs at just over eight and the dividend yield is close to 3%.

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended 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.

But as my colleague Alan Oscroft explained, things are different these days. I share his view that selling in May could be a very expensive mistake.

If share prices fall in May, that’s fine with me. I hope to do some buying and would like to pay as little as possible for my chosen stocks. Today I want to look at three companies from my shortlist.

An essential business

National Grid (LSE: NG) operates the UK’s electricity and gas transmission network. Most people are familiar with this utility business, although not everyone knows that nearly half its profits come from similar operations in the US.

Some investors are worried about utility stocks at the moment, because Labour has promised to renationalise utilities if it’s elected. This is clearly a risk, but as my fellow Fool Graham Chester has commented, it seems likely that shareholders would be properly compensated.

In my opinion, National Grid is still worth considering for its dividend income. The company’s stable cash flows and long-term outlook mean that its results are fairly consistent. I think the stock’s 5.7% dividend yield could be a good opportunity to buy.

Take the long view

Last summer, shares in FTSE 100 insurer RSA Insurance Group (LSE: RSA) were heading towards 700p. It looked like the group’s turnaround had been completed successfully.

That all changed in September, when the firm warned that high levels of claims for flooding and subsidence in the UK meant that profits would be lower than expected. There were also losses in the group’s specialist division, which insures assets like ships and large buildings.

These problems have disappointed investors and RSA’s share price was still below 550p at the time of writing. But costly claims tend to affect most insurers from time to time. I’m not convinced it’s really a bad news story.

Chief executive Stephen Hester is widely seen as having done a good job so far. Last year’s results showed a respectable 12.6% underlying return on tangible equity, despite setbacks. The shares now trade on 12 times forecast earnings and offer a 5.3% yield. I think this could be a good time for income investors to start buying.

A big opportunity?

When we use companies’ slick websites and smartphone apps, it’s tempting to think that these user-friendly tools are backed by powerful modern systems behind the scenes.

All too often, this isn’t true, especially for banks, large companies and businesses that have been through complex mergers. Many of these firms still run antiquated computer systems that were designed decades ago.

FTSE 100 firm Micro Focus International (LSE: MCRO) makes money by supporting, operating and developing old software so that it keeps working reliably alongside more modern systems.

I think of this business as an iceberg — it’s a lot bigger than it looks on the surface.

I was bullish on Micro Focus when the price was under 1,400p in December. When the shares hit 2,000p recently, I felt priced out. But Micro Focus has dropped to under 1,800p at the time of writing. That’s lifted the forecast dividend yield back to a 5.3%. At this level, I’m tempted to pick up a few.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.

Chemicals brothers

Croda International (LSE: CRDA) is not exactly a household name, but this speciality chemicals company deserves respect among investors as its share price has climbed 98% in the past five years, almost doubling investors’ money. That compares to growth of just 12.2% across the FTSE 100 as a whole. This is a real market-beater.

The momentum continues, with its share price up almost 10% year-to-date. There is one hitch. Success comes at a price, in this case a forecast valuation of 25.2 times earnings. A figure of 15 is usually seen as fair value here. Croda ain’t cheap.

Catch 2

There is another catch. It has a low yield, just 2%, covered twice by earnings. Basically, all that share price growth has driven up the valuation and driven down the yield. Management has still been generous with shareholders, making good use of the 57% rise in free cash flow last year to £155.4m. This helped fund a 7.4% hike the full-year ordinary dividend to 87p, announced in February, and a £150m special dividend of 115p per share.

My colleague Royston Wild has been impressed by Croda’s restructuring strategy and reckons this is the type of company that could sail through global economic storms. Earnings per share (EPS) are forecast to grow 5% this year and 7% next, making it one of the more solid propositions that I’ve cast my eyes over lately.

Micro magic

My other pricey pick is UK tech champion Micro Focus International (LSE: MCRO), whose share price is up a stomping 140%, measured over five years. It is up a whopping 55% over the last six months, which makes it one of the top momentum stocks on today’s FTSE 100, but there’s a reason for that.

Micro Focus issued a profit warning a year ago, which halved its share price from above 2,000p to around 950p. So most of the recent surge has been clawing back those shock losses. At today’s 1,975p, the recovery may now be complete.

Keep your Focus

It is always risky jumping late onto a bandwagon, especially with analysts ringing alarm bells about the global economy. The £8bn group trades at a dizzying valuation of 27.5 times earnings, but that is set to change. With the group’s EPS forecast to rise a barnstorming 138% this year, the forward valuation shrinks to a more reasonable 12.1 times earnings.

You get decent income as well, with a forward yield of 4.2% and cover of 2.1. Operating margins of 32% and a return on capital employed of 57.2% look tempting to me.

Out of the ordinary

As Rupert Hargreaves recently pointed out, Micro Focus has lavished investors with special and ordinary dividends and is dishing out a further $1.8bn following the $2.5bn sale of its SUSE business to Swedish buyout group EQT Partners. It knows how to show investors a good time.

I think Micro Focus merits further attention. Although maybe we have missed the best of the recent share price surge.

The post These 2 double-your-money FTSE 100 stocks just keep on climbing appeared first on The Motley Fool UK.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.

However, all the buy-to-let investors I know have had to work hard for their income over many years. They’ve suffered problem tenants, unexpected repair bills and rising costs. Not all of these property investors have managed to turn a profit.

Is the time right?

One lesson that stands out is the importance of timing. The people I know who’ve made money from buy-to-let bought their properties when they were relatively cheap, with small mortgages.

The picture today is quite different. House prices are close to record highs in many areas and other costs are rising. I don’t think now is the right time to get started in buy-to-let.

Why I’d buy stocks

It probably won’t surprise you to know that I’d much rather put my cash into the stock market. I’m particularly attracted to the FTSE 100 at the moment, which contains a number of dividend stocks which I think offer excellent value.

What I’m looking for is shares I could buy today and hold for many years to come. Instead of a rental income from buy-to-let, I’ll receive a hassle-free dividend income.

One company I rate highly is defence group BAE Systems (LSE: BA). Shareholders who bought the stock five years ago have already received 26% of their original investment back as dividends. That’s an average cash income of about 5% per year, with zero effort required and no costs. I think that compares pretty well to typical net yields from buy-to-let property.

In addition to this, the shares have risen by 13%. So shareholders have enjoyed a total return of 39% in five years.

There’s more to come

BAE’s 2018 results received a shaky reception on Thursday after the company warned of possible problems with a deal to sell aircraft to Saudi Arabia. Personally, I share my colleague Ed Sheldon’s view that this is just short-term noise.

I’m more interested in news that BAE’s order intake rose from £20bn to £28bn last year, lifting its order backlog from £38.7bn to £48.4bn. I’m also attracted by the firm’s stable profits and reliable cash generation.

With the stock trading on 11 times forecast earnings and offering a 4.8% yield, I think now could be a good time to buy.

An overlooked income powerhouse

Another FTSE 100 stock I rate highly for income is software group Micro Focus International (LSE: MCRO). This company specialises in supporting, developing and extending legacy enterprise computer systems, of the kind used by many big businesses.

Micro Focus hit problems last year with the integration of a major acquisition. But the firm’s management appear to have the situation under control and performance is steadily improving.

I like this business because it enjoys high profit margins and generates a lot of surplus cash. For example, last year’s 12-month dividend of 100.8 US cents per share was covered 1.8 times by free cash flow of $755m.

This leaves me confident that the stock’s 4.4% dividend yield is sustainable and should continue to rise. I continue to view Micro Focus as a dividend buy.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.

How do you respond when you’ve seen a FTSE 100 blue-chip such as software giant Micro Focus International (LSE: MCRO) jump 15% in a day? You take a calm look at the opportunity to see if it still holds.

Takeover trouble

Investors are celebrating as the group’s management says it’s now getting on top of its integration of the Hewlett Packard Enterprise, acquired in a reverse takeover in September 2017. Today’s unaudited preliminaries for the 18 months to 31 October show the rate of revenue decline has been easing and should further improve in 2019.

Investors are also set to enjoy a windfall as management pledged to return the proceeds of the $2.5bn sale of its SUSE business and keep its share buyback scheme going. Micro Focus is bouncing back nicely from its profit warning last March.

Cashing in

It still has some way to go, with group pro-former revenue falling 5.3% in the 12 months to end-October, although guidance suggested 6-9%. Revenue from its product portfolio, excluding SUSE, slipped 7.1% on a pro-forma constant currency basis to $3.7bn, although margins jumped from 33.3% to 38.4% year-on-year.

CEO Stephen Murdoch hailed a solid financial performance and said the Micro Focus operating model should deliver substantial cash returns to shareholders, with total dividends per share of 151.26 cents, plus $400m of share buy-backs, with SUSE proceeds to come.

Shareholder rewards

Murdoch expects revenue declines to moderate further as the company looks “to build a more dynamic environment where execution is faster, operations simpler and people more accountable.” My Foolish colleague GA Chester recently suggested that today’s results would be a catalyst for improved investor sentiment, and they certainly are.

This £7bn company trades at a forward valuation of just 9.7 times earnings, while the forecast yield is a generous 5.4% with cover of two. Earnings per share are expected to start growing again, by 9% next year, and 10% the year after. Operating margins are currently 32.6%. It looks a buy to me. Maybe let the share piece calm down a bit first.

In a fix

DIY chain operator Kingfisher (LSE: KGF) has also had a rough ride, with the share price down 34% in the last year alone. Its stock now trades at 230p, having lost nearly half its value since spiking at 438p almost five years ago.

Kingfisher’s main businesses are B&Q, Screwfix and French chains Castorama and Brico Depot. It has been hit by falling sales, particularly at flagship brand B&Q and in France, although Screwfix and the group’s German business have fared better.

These are tough times for retailers and not just in the UK, as Europe flirts with recession. Accordingly, Kingfisher has quit Russia, Spain and Portugal. RBC Capital Markets recently downgraded the stock due to the unsupportive UK outlook, which provides 50% of its revenues, and structural issues in France.

B&Q it

Global housing markets are slowing due to high prices and recession fears, and this could reduce demand for DIY products. The £4.9bn business trades at just 8.8 times forecast earnings, so there could be a buying opportunity here.

Kingfisher’s forecast yield is 5%, with cover of 2.2%, and City analysts foresee EPS growth of 16% and 10% in the next two years. Maybe things aren’t as screwy as they seem. Especially with the company returning £600m in capital to investors.

The post Micro Focus International is up 15% today. Here’s what I think you should do now appeared first on The Motley Fool UK.

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harveyj has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.

Stock markets have been in retreat since the autumn, and the valuations of some of the underlying businesses look attractive. Dividend yields have been driven up and it is potentially a great time to buy shares as long as you don’t believe that a 2008-style general economic collapse is just around the corner. I don’t, so I’m hunting for shares right now.

Digesting a big acquisition

Global software company Micro Focus International (LSE: MCRO) has seen its share price plunge around 45% over the past year. A profit warning in March did the most damage and arose because the firm was having trouble integrating its gargantuan $9bn acquisition of Hewlett Packard Enterprises’ software business.

However, in a trading update released during November, the firm said revenue was on an “improved trajectory” in the second half of the year to October 2018, albeit set to come in around 6% lower than the previous year. Meanwhile, the shares value the firm at an earnings multiple around nine and the dividend yield is near 5.8%. I think that looks like decent value and it could be worth collecting the dividend while waiting for a return to growth.

Braced to ride the cycle

Private equity and infrastructure investment company 3i Group (LSE: III) said in its half-year results report in November that it is not “immune to market developments,” but the directors believe that “careful asset management and clear strategic focus” leaves the portfolio“better positioned than in the past.”

Many of the firm’s investee companies operate in cyclical sectors such as retail and the headwinds in such sectors have been well reported. But 3i reckons its balance sheet strength will help it “withstand market turbulence.” The firm plans to hold investments for longer if necessary, which would enable it to ride the dips and exit investments on the peaks of the cycle later. Meanwhile, a forward price-to-earnings multiple just over six and a dividend yield a little higher than four seem to factor in the uncertainty in the outlook.

Trading well, yet the stock market is nervous

One prominent victim of the stock market sell-off has been paper-based packaging products manufacturer Smurfit Kappa Group (LSE: SKG). The company makes containerboard, corrugated containers, solid board, graphics board and bag-in-box for Europe and the Americas. It seems to me that the stock market is worried about the potential for a cyclical slowdown in the business. But at the end of October, the company said in a trading statement that its key performance measures showed significant and continuing improvement.

Indeed, City analysts following the firm expect ongoing annual advances in revenue and earnings. Yet the valuation languishes on a forward earnings multiple around 7.6 for 2019 and the dividend is yielding about 4.5%. I think the stock is attractive.

Arguably, the best time to pick up shares is when the outlook is a little murky and valuations are compressed. I think we are seeing that situation with these three firms today.

The post 3 promising FTSE 100 names I’d buy for a stocks and shares ISA appeared first on The Motley Fool UK.

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.