2 tempting small-cap stocks I’d buy for March and beyond

Decent dividends, reasonable valuations and good quality drive momentum for these two shares.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Recruitment firm SThree (STHR) specialises in the science, technology, engineering and mathematics sectors and business is good.

Recruitment companies are cyclical but the market is booming and it’s good to see that SThree has its financial house in order with no long-term debt and around £15m cash on the balance sheet at the last count. 

When economic cycles become mature, as now, cyclical firms have often seen several years of bumper profits, if they don’t pay down their debts then when will they? Cyclical companies need a strong balance sheet to ride out the next economic soft patch or downturn when it comes and SThree sees clouds gathering ahead, although nobody knows how much it will rain.

Back in January, SThree delivered full-year results with profits ahead of expectations but warned that the heightened level of political and economic uncertainty is the primary feature of the firm’s trading outlook. However, the directors see attractive growth opportunities in the contract market, which is more resilient in periods of economic uncertainty.

Attractive figures

At today’s share price of 312p, you can pick up SThree shares on a forward price-to-earnings (P/E) ratio of just under 13 for 2018 and the forward dividend yield runs at 4.5%. City analysts following the firm expect forward earnings to cover the payout around 1.75 times.

Apart from a modest-looking valuation, reasons for optimism about SThree include a return on capital running at a robust double-digit percentage clip, good cash generation that supports profits, and forecasts for rising revenue and profits over the next two years despite economic uncertainties.

I think SThree looks like a tempting prospect right now but specialist currency manager Record (LSE: REC) sports tempting metrics too. The company has a history of solid-looking cash generation that supports profits well and the return on capital runs around 19%. 

The quality of operations shows in the figures but some decent value seems to be on offer as well. At today’s share price around 39p, the forward P/E ratio is around 11 for the year to March 2019 and the forward dividend yield sits at 4.4%. City analysts following the company expect earnings to cover the payout just over twice. 

In January, with the firm’s third quarter trading update, chief executive James Wood-Collins suggested a positive outlook as political and economic events continue to buffet currency markets around the world driving flows of money into the firm’s multi-product and hedging products. He reckons such volatility and uncertainty in markets continues to provide opportunities for Record to discuss both its return-seeking and risk-reducing products with current and potential clients, which could lead to further business down the road.

Record seems to be trading well and the stock delivers a decent showing on indicators for quality, value and momentum, so I think it’s well worth your own consideration and research today for March and beyond. Sometimes it’s a good thing to buy shares when things seem to be going well for an underlying business rather than waiting for setbacks to knock the share price.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

How much would I need to invest in income shares to earn £300 a month?

What kind of lump sum would be required to earn £300 a month by taking advantage of some of the…

Read more »

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »