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One of the main characteristics of value stocks is that the underlying businesses tend to be in trouble, at least temporarily. And they rarely come with a rosy outlook, which is why they often look cheap.
But savvy investors can do well by picking value stocks if the market has pushed them too low. In fact, ratings may re-rate higher. And that’s especially true if conditions in the business start to improve.
Sometimes the gains in stock price can be worth the wait. But it’s just as possible to pick a cheap-looking stock that’s struggling to recover. Or worse, stocks can plunge despite looking like a bargain all the time.
Hospitality
I think several stocks deserve further consideration and investigation at this time. For example, a restaurant and pub operator managed mitchells and butlers It looks cheap on a couple of gauges.
With the share price near 164 pence, the tangible price-to-book ratio is around 0.45. And the price-sales ratio is about 0.43.
However, the company has a large debt. And that could become problematic if the trade in the business fails.
There is a history of volatile earnings that shows that the business is at the mercy of the ups and downs of the general business cycle. But that can work both ways and drive up the stock price if earnings pick up steam in the next few years.
Meanwhile, the January first quarter business update contained some strong numbers. And I would describe the outlook statement as optimistic but cautious.
construction products
ibstock manufactures clay and concrete construction products. And with the share price just above 168 pence, the forward-looking price-earnings multiple is just under 11 by 2024.
However, the main attraction is the dividend. City analysts anticipate a return of just under 5% for the coming year.
But the company’s financial and business track record shows multi-year volatility for both earnings and dividend. And that reveals the cyclical nature of the business, which adds risks for investors.
On March 8, the company released a decent set of figures for 2022. But directors said activity in the first few weeks of 2023 was weaker. and that went on “more cautious” demand in the fourth quarter of 2022.
raw Materials
parliamentarian evans (LSE: MPE) is a UK-based company that owns, manages and develops sustainable oil palm plantations in Indonesia.
The main draw of this stock is the prospective dividend that yields just over 5% by 2024. And with the share price nearing 860 pence, the anticipated earnings multiple is just over nine for next year.
Those numbers are combined with a price-to-tangible book value of around 1.2 to make the overall valuation seem undemanding.
Meanwhile, earnings and dividends have performed well for several years. But the business has a volatile earnings record.
And the main risks include the vulnerability of crops to destructive natural events and fluctuations in palm oil prices. However, the company has managed to achieve a net cash position on its balance sheet instead of net debt. And the business has been growing organically and through acquisitions.
There are opportunities and threats for these three businesses. And a positive investment result is not guaranteed. However, each of them is worthy of further investigation for investors willing to take a long-term view of their prospects.
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