Growing business

Goodwin is a metalworking business operating through two segments, mechanical engineering and refractory engineering. Put simply, the company manufactures and machines metal parts for customers.

Despite the uncertain economic environment, business is booming across the enterprise.

According to Goodwin’s preliminary results for the year ended 30 April, the forward order book stands at a “record” £165m, an increase of 94% year-on-year. On top of this, the firm has several “large long-term contracts” that are still to be placed. All in all, pre-tax profit increased 11% for the year to £14.7m and revenues rose 1.8%.

Goodwin might be a relatively small business with a market capitalisation of £250m at the time of writing, but don’t let this size deceive you. The company has a global footprint and added businesses in China and Thailand to the group during its last financial year. Just 22% of total sales came from the UK last year.

Over the past five years, as the firm has reinvested profits back into the business to drive growth, book value has risen at a compound annual rate of 11.3%. I think this growth is a testament to the company’s ability to create value for shareholders.

At the time of writing, shares in the group are dealing at a historical P/E of 21.4, which, in my opinion, is not too demanding considering Goodwin’s order book and record of creating value for investors. It also supports a dividend yield of 2.5%.

Brand power

I also reckon Moneysupermarket.Com (LSE: MONY) could be an excellent addition for a retirement portfolio.

What I like about this company is its market-leading brand. There are only really three major price comparison websites in the UK, and Moneysupermarket is one of them. Consumers know and trust the brand, and brands also trust the business to provide customers.

The company’s market-leading position means that it can generate fantastic profit margins. Last year, Moneysupermarket’s operating profit margin clocked in at 30.4%. Return on capital employed — a measure of profitability for every £1 invested in the business — hit 50%.

However, despite this profitability, shares in Moneysupermarket are only changing hands at a forward P/E of 20, falling to 18.4 in 2020 based on current City estimates for growth. Considering the company’s profitability, I believe the shares are worth around 25% more than the current price, which would give a P/E of 25. That’s without factoring in any future growth.

I think Moneysupermarket has the potential to grow earnings at a high single-digit rate for many years to come as more and more consumers turn to the business for money-saving deals, and management uses excess cash for acquisitions. On top of this growth, the stock currently supports a dividend yield of 3.1%.

The post Two stocks I’d buy today to retire on appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• How much would a portfolio of income shares need to be worth to produce £32,700 a year in retirement?
• How much would investors have to invest in this FTSE dividend giant to target £16,771 a year in passive income?
• With a 6.9% yield, is this one of the best FTSE 250 stocks for passive income?

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Goodwin and Moneysupermarket.com. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Indeed, at the time of writing, shares in the global banking giant are trading at around 750p, up approximately 80% from the lows. 

Several factors have helped the bank’s recovery. Weak sterling has helped improved earnings per share, as an improving global economy, cash returns to investors, and rising interest rates have all helped improve sentiment towards the global banking sector. 

Further growth ahead 

With several tailwinds working for HSBC, City analysts expect the bank’s earnings per share to return to growth this year, breaking a multi-year trend of falling income. 

For the year ending 31 December, analysts are forecasting EPS of 52.7p on a pre-tax profit of £14.8bn. For 2018, further growth is expected. Analysts have pencilled in earnings growth of 4%. As well as steady earnings rises, shares in HSBC also offer a dividend yield of 5.2%. 

However, following the company’s rapid share price rise over the past year, the stock now looks expensive. The bank’s forward P/E of 13.9 is around a third higher than the financial services sector average of 10.4. 

Considering HSBC’s premium valuation, I’d sell the bank in favour of ‘secret’ turnaround stock Goodwin (LSE: GDWN). 

This engineering group has, like the majority of its peer group, seen its earnings collapse following the oil & gas industry slump that’s been unfolding since 2014. After hitting a high of £19m in 2014, net profit slumped to just £6m for fiscal 2017. Over the same period, EPS fell by 70%. 

But it looks as if this slump is only temporary, and I believe that Goodwin could be a better buy than HSBC as a result. 

Rising profits 

According to its interim results release for the six months to 31 October, published today, some green shoots are starting to appear in the company’s growth outlook. Pre-tax profit ticked higher to £6.1m from £6.05m year-on-year. Commenting on the rest of the year, management noted that “we expect to see the Group profitability for the second half of the year starting to move forward again” thanks to an improvement in trading. 

Even though no City analysts are covering the company, I believe that this could be just the start of its comeback.

Benefitting from global trends 

The global oil & gas market is showing signs of growth, and as companies start to spend again, Goodwin’s earnings should make a recovery. 

Since 2015, according to consultancy Wood Mackenzie, almost $1trn has been removed from projected global capex plans thanks to lower oil prices, hitting oil service companies like this hard. However, the consultancy expects spending to rise 15% this year for both unconventional and deepwater projects compared with 2017 levels. A separate survey from Barclays forecasts an 8% year-on-year rise in global upstream spending in 2018. 

A pick-up in spending will helpfully translate into revenue and earnings growth for Goodwin. As the company’s recovery gains traction, I believe that it could be a better buy than HSBC. 

The post Why I’d buy this ‘secret’ turnaround stock over HSBC appeared first on The Twelfth Magpie.

More reading

• Up 250%! Here’s why I bought HSBC shares over SpaceX stock
• How much might £19,999 in a Stocks & Shares ISA be worth by 2036?
• Could a Stocks and Shares ISA eventually replace the State Pension?
• 2 bank shares I like better than Lloyds today
• How much do I need to invest in HSBC shares to target £5,986 a year in second income?

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Goodwin and HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.