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I'm honest enough to admit that I often overlook smaller companies without much fanfare or presence when looking for quality cheap stocks.
In my opinion, there are many offers that go unnoticed.
Two selections that caught my attention recently are Costain Group (LSE: COST) and Coats Group (LSE: COA).
Here's why I think both stocks could be smart investments for me right now. I would love to buy some stocks if I had extra money to invest.
What they do
Costain is a sustainable infrastructure solutions provider with roots dating back to 1865. In simple terms, it builds critical structures such as utility buildings, roads, railways and more.
stocks have had a great run lately. They have risen 31% in a 12-month period from 60p this time last year to current levels of 79p.
Coats Group is the world's largest manufacturer of yarns and structural components for apparel, footwear and other materials.
Unlike Costain, Coats shares have gone up and down over a 12-month period. Ultimately, they are up 2% from 77p this time last year, to current levels of 79p.
The Costain investment case
In my opinion, Costain's track record and track record in helping infrastructure move forward is unrivaled. This could also play a major role in future growth as the UK looks to spend heavily in this area as outdated facilities need to be renovated. In addition, it is also necessary to serve a growing population.
Full-year results released last month showed a strong order book, as well as higher profit levels, margins and the reintroduction of a dividend. These are just some of the key positives I noticed.
The stock looks cheap to me with a price-to-earnings ratio of eight. A dividend yield of 1.6% also sweetens the pot. However, I understand that dividends are never guaranteed.
From a bearish perspective, cyclical headwinds in the economy have hurt Costain in the past and could do so in the future. In context, economic problems can slow down infrastructure spending. The pandemic is a great example of this happening, and the current economic problems won't help the company either.
Coats Investment Case
I think Coats is an excellent stock to buy for an eventual recovery, as well as growth and profitability. Shares may not trade at current levels for long. The AP/E ratio of 13 seems attractive to me for a company that provides the thread for a quarter of the world's clothing! Plus, a 2.8% yield helps my investment case.
I am aware that the fashion industry has been greatly affected by volatility around the world. Issues such as tighter margins and stock control as consumer spending has weakened have hurt the company. I guess that's also why the stock has been held. If this continues, stocks could continue to struggle and returns could take a hit.
A good track record of cash generation and what looks like a healthy balance sheet could help avoid problems during the current malaise. When the retail sector recovers, I would expect Coats stock to rise.
