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Two picks I reckon are worth investors digging deeper into are Howden Joinery Group (LSE: HWDN) and Safestore (LSE: SAFE).
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Here’s why!
What they do
Howden is one of the largest kitchen and joinery products in the UK, based on market share. With a wide presence through its depots, the firm sells direct to consumers, the trade, and the construction industry, too.
Safestore is also a market leader in self-storage. In this case, it possesses a large number of storage facilities in the UK, and is expanding abroad too.
Howden’s investment case
From a bullish view, Howden’s growth story, as well as performance and earnings record, is hard to ignore. Organic and acquisition-led growth has catapulted it towards market dominance. However, I do understand that past performance isn’t a guarantee of the future.
A recent update showed me that the business is looking to push further growth. This is through streamlining operations, and boosting profitability.
Furthermore, the business could experience growth related to the housing shortage in the UK. The requirement for kitchens and joinery products could soar as this imbalance is addressed.
From a fundamental view, the shares offer a dividend yield of 2.4%, and the company has a good track record of raising dividends. Plus, I can see this level of return growing. However, I do understand that dividends are never guaranteed.
Moving to the other side of the coin, economic volatility, especially inflation, is a worry for me. Higher raw costs mean margins are under threat, and this could impact earnings and returns. However, Howden’s pricing power, linked to its brand power, reach, and reputation could negate this.
I own Howden shares personally, and plan to hold them for a long time for returns and growth.
Safestore’s investment case
Self-storage supremo Safestore is another stock with a fantastic growth journey behind it. Similarly to Howden, it has grown to become the largest business of its kind in the UK. Interestingly for me, it is looking to emulate this success in Europe too. This is an exciting development if you ask me, as the European self-storage market is underpenetrated, and ripe for the picking. Earnings and returns could grow exponentially if it pulls this off.
Digging into fundamentals, Safestore shares look fantastic value for money. They trade on a price-to-earnings ratio of just over six. Plus, a dividend yield of 3.7% is attractive and could also grow in the years to come.
However, from a bearish view, I’m concerned about volatility. Despite the e-commerce boom meaning storage space is in high demand, higher interest rates have hurt net asset values (NAVs) and investor sentiment. Plus, a cost-of-living crisis has meant potential rent defaults, and a slowdown in new business could hurt returns and earnings.
I’d love to buy Safestore shares the next time I have some free funds.
