Three bargain-basement stocks for income and growth

Simon Gergel, manager of The Merchants Trust, highlights three cheap, sound businesses that he thinks will produce long-term profits.

A professional investor tells us where he'd put his money. This week: Simon Gergel, manager of The Merchants Trust, highlights three recent purchases.

Our investment approach is to seek out high-yielding stocks that we believe can deliver a high income and an attractive total return. We consider three key aspects of a company.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

First, the fundamental strengths, notably the structure of the industry it operates in, the group's competitive position, balance sheet and cash generation, and also environmental, social and governance factors.

Second, we gauge the valuation of the shares compared with history and other companies in the market.

Advertisement
Advertisement - Article continues below

Finally, we assess long-term structural trends affecting the industry as well as shorter-term cyclical threats and opportunities. Ultimately, we are seeking sound businesses that are attractively valued and poised to benefit from cyclical or structural trends.

Here are three we bought in the last financial year:

Cashing in on mass affluence

St. James's Place (LSE: STJ)

St. James's Place has been able to grow both the number and the productivity of its advisers effectively over the longer term. The firm benefits from a number of structural trends, such as a growing affluent population and increasing need for financial advice with a shift out of final-salary pension schemes among younger workers.

Strong foundations for growth

Keller (LSE: KLR)

In order to increase urban density and replace infrastructure, today's developers have to dig deeper and more complex foundations, and deal with increasingly challenging ground conditions. The valuation of the shares was very depressed last year, partly owing to a number of operational difficulties, but also because of its UK stockmarket listing. With less than 5% of sales in the UK, we thought the business was wrongly categorised as a UK construction business, resulting in an unreasonably low valuation.

Advertisement
Advertisement - Article continues below
Advertisement

Recommended

Visit/investments/stocks-and-shares/share-tips/600641/share-tips-of-the-week
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
17 Jan 2020
Visit/519913/share-tips-8-stocks-for-robust-returns
Share tips

Share tips: eight stocks that should deliver robust returns

Ryan Ermey of US publication Kiplinger’s Personal Finance chooses his favourite stocks for the next decade, which should be able to grow for years.
28 Dec 2019
Visit/519724/share-tips-of-the-week-166
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
20 Dec 2019
Visit/519436/share-tips-of-the-week-165
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
13 Dec 2019

Most Popular

Visit/currencies/600665/currency-corner-new-zealand-dollar-kiwi-vs-us-dollar
Currencies

Currency Corner: how is the New Zealand dollar doing against its US counterpart?

The New Zealand dollar has been doing well against the US dollar in recent months, but has started to wobble a little. Is it still a buy? Dominic Fris…
20 Jan 2020
Visit/investments/stocks-and-shares/share-tips/600653/indias-small-and-mid-cap-stocks-are-set-for-big
Share tips

India’s small and mid-cap stocks are set for big gains – here are three to buy now

Each week, a professional investor tells us where he’d put his money. This week: David Cornell of the India Capital Growth Fund highlights three favou…
20 Jan 2020
Visit/investments/stocks-and-shares/share-tips/600636/class-acts-going-cheap-buy-into-europes-best
Share tips

Class acts going cheap: buy into Europe’s best bargains

Value investing appears to be making a comeback, while shares on this side of the Atlantic are more appealing on metrics such as price/earnings ratios…
16 Jan 2020
Visit/investments/stocks-and-shares/share-tips/600641/share-tips-of-the-week
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
17 Jan 2020