3 high-quality FTSE small-cap stocks I’d buy in this market crash

G A Chester reckons these three small-cap stocks have better ‘blue-chip’ credentials than many FTSE 100 companies!

| 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.

It’s an old stock market adage that FTSE 100 blue-chips are less risky than small-cap stocks. However, there are exceptions to the rule. Indeed, I’m convinced a few small-caps actually have stronger blue-chip credentials than some Footsie giants!

Regular Motley Fool readers will know I’ve been banging on for years in praise of the couple of dozen long-established family businesses listed on the UK stock market. Pubs group Fuller, Smith & Turner (LSE: FSTA), soft drinks firm Nichols (LSE: NICL), and lighting company FW Thorpe (LSE: TFW) are three such firms. Let me show you their blue-chip credentials, and why I’d be more than happy to buy them today.

Building long-term wealth

Strong balance sheets, and careful stewardship through multiple economic cycles and market crashes, are features of these businesses. I believe these qualities align well with the aims of investors seeking to steadily build wealth over the long term.

Furthermore, with a largely stable shareholder base of family members, and like-minded long-term investors, these companies’ share prices tend to hold up relatively well through the sort of market crash we’re currently experiencing.

The table below shows the performances of the FTSE 100, Fullers, Nichols, and Thorpe since markets went into free-fall after 21 February.

 

Price at 21 Feb

Price at 11 March

Change

FTSE 100

7,404

5,237

-29%

Fullers

914p

682p

-25%

Nichols

1,425p

1,350p

-5%

Thorpe

319p

274p

-14%

Seven decades of dividend growth

Fullers (founded 1845) owns premium pubs and hotels, as well as craft cider and gourmet pizza restaurant chain The Stable. As you can see, it’s outperformed the FTSE 100. This is despite it being in one of the sectors most heavily impacted by Covid-19 fears. For example, blue-chip Whitbread, the owner of Premier Inn — and food and drink chains, including Brewers Fayre — has seen its shares plummet 46%.

Fullers has a strong, freehold property-backed balance sheet. Furthermore, the sale of its brewing business last year, with cash proceeds of over £200m, now looks very timely. The company has a remarkable dividend record of seven decades of unbroken growth. The running yield of 3% and price-to-earnings (P/E) ratio of 14 indicate value against historical standards. And the same is true for Nichols and Thorpe.

Defensive out-performer

Nichols (founded 1908) owns a portfolio of still and carbonated drinks brands, headed by its flagship brand Vimto. The superior performance of its shares (-5%) versus the FTSE 100 reflects the defensive characteristics of the business. Having said that, it’s also outperformed Footsie drinks giant Diageo (-23%), which is widely seen as an exemplar of blue-chip quality.

Nichols’ latest annual results show cash of £40.9m on the balance sheet at the year-end, and no debt. The cash-adjusted P/E is 17 and the running dividend yield is 3%.

Another cash-rich small-cap stock

FW Thorpe (founded 1936) designs, manufactures and supplies professional lighting systems. It serves diverse industries and customers. Nevertheless, it’s more geared to the general economic backdrop than a company like Nichols. In other words, it’s a cyclical rather than defensive business. Yet its shares (-14%) have significantly outperformed not only the FTSE 100 during this market crash, but also classy blue-chip sector peer Halma (-19%).

Thorpe is another cash-rich family business. It had £30.8m on its balance sheet and no debt at its last year-end. The cash-adjusted P/E is 17.8 and the running dividend yield is 2%.

Hopefully, you can now see why I believe Fullers, Nichols and Thorpe deserve to be called blue-chip small-caps.

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.

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo, Fuller Smith & Turner, Halma, and Nichols. 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.

More on Investing Articles

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 »

Investing Articles

2 FTSE dividend shares yielding more than 6% with P/Es of less than 9!

Harvey Jones picks out two brilliant FTSE 100 dividend shares that yield more than 6% but are selling at strangely…

Read more »

Investing Articles

Up 105% in a year! Is this rocketing FTSE bank the perfect pick for my Stocks and Shares ISA?

Harvey Jones is drawing up a shortlist of stocks to purchase inside his Stocks and Shares ISA allowance. This FTSE…

Read more »

Investing Articles

Down 78%, is this once-hot AI growth stock set to explode like the Rolls-Royce share price?

Our writer asks if he should invest in Super Micro Computer (NASDAQ:SMCI) following the growth stock's massive recent decline.

Read more »

Investing Articles

Is it madness to buy Palantir shares after Q3 earnings?

Palantir stock's surging again after the firm's Q3 earnings report. But after a 150% gain, is it too late to…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

£6,000 in savings? Here’s how I’d aim to turn that into £1,032 a month of passive income!

A small investment in high-dividend-paying stocks with the returns used to buy more shares can generate big passive income over…

Read more »

Chalkboard representation of risk versus reward on a pair of scales
Investing Articles

As Lloyds’ share price tumbles 14%, is this an unmissable opportunity for me to buy at a bargain-basement price?

The Lloyds share price is substantially below its year high, but decent earnings prospects should drive its price and dividend…

Read more »