Even with many FTSE shares trading near record highs, hidden buying opportunities are never far away for investors willing to look closely. And right now, I have two stocks firmly in my sights.
I already own one of them. And after reviewing the latest progress of both businesses, I’m seriously considering snapping up some more shares as well as pulling the trigger on the other for the very first time.
So what’s got me so excited?
A compounding machine in overdrive
First on the list is Diploma (LSE:DPLM). This is a value-add solutions group, supplying critical components and specialist services across three divisions (Controls, Seals and Life Sciences) to customers across aerospace, defence, data centres, infrastructure and healthcare.
The latest numbers largely speak for themselves. During the six months leading to March, revenue grew 17% to £851.1m, adjusted operating profit surged 33% to £208.9m, and adjusted EPS jumped 36% to 109.2p.
Considering this is a near-£10bn industrials giant, that level of growth’s a pretty rare sight. Of course, no business is ever without its flaws. And Diploma’s no exception.
Organic growth in its International Seals segment has been a rather mediocre of late, reaching only 2% as a direct consequence of a softer European industrials market. And if that softness spreads into other sectors due to rising energy costs, Diploma’s impressive momentum could start to slow – a key risk I’m watching carefully right now.
The world’s shipping is indispensable
The potential newcomer to my portfolio is Clarkson (LSE:CKN). While not a household name, it’s a business that sits at the heart of almost every international supply chain in the world.
Clarkson’s the globally-leading provider of shipbroking, research, and logistics services to the shipping and offshore markets. And without it, moving cargo and crude oil among other goods across the oceans would be near impossible.
Just like Diploma, the group’s latest trading update was unambiguously strong. The Broking division generated revenue and profits “materially ahead” of the same period last year, as geopolitical complexity and extended voyage distances pushed up chartering rates and asset prices.
At the same time, its Research arm continues to benefit from customers paying premium prices for market intelligence in a disrupted trading world.
Combined, these tailwinds have translated into impressive free cash flow generation even within an industry as cyclical as shipping. However, just like Diploma, there are a few weak spots.
UK government policy on new oil and gas development and delays to offshore energy projects are creating a challenging environment within the energy sector. And while the conflict in the Middle East has benefited the bottom line due to longer shipping journeys, it’s also taken a toll on its Egyptian operations, which have suffered as a result of lower traffic moving through the Suez Canal.
Time to pounce on these FTSE shares?
Both Diploma and Clarkson look like high-quality businesses to buy and hold for the long run, in my mind. Even more so given how well both have been able to execute and expand even in a complex macroeconomic and geopolitical landscape.
That’s why they’re both on my personal Buy list. And these aren’t the only FTSE shares I’ve got my eye on right now…
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Zaven Boyrazian owns shares in Diploma.
