On the hunt for the best shares to buy, I noticed one value stock recently: Costain Group (LSE: COST).
Let’s dig deeper into the business, as well as my investment case.
Building the future
Costain is a sustainable infrastructure solutions provider with decades of history under its belt. It plays a pivotal role in building essential infrastructure we use on a day-to-day basis, such as roads, bridges, and more.
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The shares have been on a fantastic run in these past 12 months. At this time last year, they were trading for 46p, compared to current levels of 85p, which is an 84% rise.
My investment case
Costain’s experience working with the government, the construction and infrastructure industry, as well as historic track record are major plus points for me. The firm possesses extensive experience in many different types of infrastructure, and is seen as an industry leader. Costain continues to win lucrative contracts, including the latest, a tender to help improve water and wastewater assets for Southern Water.
Next, the need for increased infrastructure spending in the UK could help Costain grow future earnings and returns. This is linked to our ageing infrastructure, as well as the UK population growing, which needs to be addressed.
Moving on, the fundamentals look good too. The firm has a good track record of past performance. However, I do understand that the past isn’t a guarantee of the future.
Costain shares look good value for money to me as they trade on a price-to-earnings ratio of just 10. However, I can see this valuation rising if its share price and performance continue upwards.
Finally, the Costain board reintroduced the dividend earlier last year. This is another sign of a business on the up as it decided to reward its shareholders. At present, a dividend yield of 1.4% helps my investment case. However, I do understand that dividends are never guaranteed.
Risks and what I’m doing now
I have two main concerns that I reckon could dampen Costain’s progress and momentum. Firstly, it is at the mercy of economic volatility. Plus, one-off events like the pandemic could halt, or at least delay, infrastructure spending. Recent turbulence due to inflation and higher interest rates have shone a spotlight on the government and infrastructure spending. With the new Labour government talking of a financial black hole, some projects could be on the chopping block.
Next, although inflation seems to be under control at present, rising costs could take a bite out of profit margins. This is a worry as these profits underpin growth initiatives, as well as investor returns.
Overall, I reckon the pros outweigh the cons. I’d be willing to buy some Costain shares when I have some available funds. A good track record, industry experience, and existing relationships, an enticing valuation, and a passive income opportunity help my decision.
