Advertisement

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.

Advertisement - Article continues below

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.

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.

New markets for a tobacco giant

Imperial Brands

(LSE: IMB)

Advertisement
Advertisement

Recommended

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
Share tips: eight stocks that should deliver 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
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.
20 Dec 2019
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.
13 Dec 2019

Most Popular

Eagle Lightweight GT: the reincarnation of the E-type Jag
Toys and gadgets

Eagle Lightweight GT: the reincarnation of the E-type Jag

Jaguar’s classic E-type sports car has been reinvented for the modern age. The result – the Eagle Lightweight GT – is a thing of beauty.
7 Aug 2020
Should you take advantage of the UK’s new breed of domestic holidaymakers?
Buy to let

Should you take advantage of the UK’s new breed of domestic holidaymakers?

With Britons choosing to holiday in the UK this year, the owners of the country’s holiday cottages are cleaning up. Should you buy in, too? Merryn? So…
10 Aug 2020
The pound has been trending higher against the dollar – will it last?
Sponsored

The pound has been trending higher against the dollar – will it last?

Sterling has been rising against the dollar. Dominic Frisby sets his trend lines in the charts to see where the pound is heading next.
10 Aug 2020