With the stock market sliding throughout October, there are still plenty of cheap shares for investors to capitalise on. And looking at my portfolio, multiple top-notch companies have been caught in the crossfire. As such, now might be an excellent time to load up on more discounted shares with a spare grand at hand. Let’s take a closer look.
Investing in construction
Much like the real estate sector, infrastructure projects are notoriously cyclical. And with interest rates making debt more expensive, many projects have been delayed, or put on hold, until the lending environment stabilises. That’s created several challenges for Somero Enterprises (LSE:SOM).
The company is a leader in laser-guided concrete laying screed machines. It’s hardly the most glamorous company, but its machines have become an integral part of the US construction industry, enabling customers to save considerably in terms of time and money.
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The current downcycle within the market is clearly reflected in its most recent results, with sales and earnings down by double digits. Yet lumpy earnings are hardly anything new for Somero. And with a cash-rich, debt-free balance sheet, the firm has plenty of resources at hand to weather the storm, as well as maintain dividends.
A prolonged slowdown in its core markets could, of course, eventually turn problematic. And that’s a risk investors ought to take into account.
However, with the completion of a 50,000 sq ft expansion to its Michigan facility, Somero’s operational capacity has improved by an estimated 35%. In my opinion, that places the firm in a perfect position to thrive once demand eventually returns. And at a price-to-earnings (P/E) ratio of just 6.9, these shares look dirt cheap for when I have some cash to spare.
Efficiency is the new sexy
The macroeconomic environment being rather unpleasant for unprofitable and debt-ridden enterprises. So, improving margins has become a top priority for many firms. That’s why so many headlines have covered the latest round of layoffs in recent months. This is especially prevalent in the tech sector.
However, while sacking employees can alleviate short-term struggles, it can end up destroying value in the long run. Numerous studies have shown that rehiring and retraining new employees once economic conditions improve on average is far more costly than just retaining original staff through the storm.
That’s why optimising processes to eliminate bottlenecks and improve operational efficiency is typically a far better solution. And it’s one that Kainos Group (LSE:KNOS) provides.
The company works with other businesses to digitalise operations, helps integrate the Workday human capital management (HCM) platform, and offers its own suite of software solutions that integrate into Workday. And its solutions are already being used by leading institutions, including Shopify, Netflix, and even the NHS.
With demand for cost-saving services going through the roof, Kaino is having little trouble attracting increased spending. Sales and profits are up by double digits. However, the revenue stream is largely dependent on the adoption and utilisation of the Workday platform. And that does pose a significant risk if other HCM solutions steal market share.
At a P/E ratio of 36, these shares don’t look particularly cheap. Yet, on a forward-earnings basis, this metric drops to 23. That’s still a bit pricy, but compared to its five-year average of 35, a discount seems to have emerged. That’s why I’ve recently added this business to my portfolio.
