Filtration

The company in question is Porvair (LSE:PRV). The firm manufactures filtration equipment for the aerospace and laboratory equipment industries.

There are several reasons I like this business, including:

• Strong repeat business.
• High barriers to entry.
• Resilient revenue streams.
• Impressive cash conversion.

Let’s take a closer look at each of these. 

In the aerospace industry, Porvair’s filters have to be replaced after a certain time. This isn’t optional – it’s a legal requirement. With lab equipment, a lot of the company’s products are designed to be used once. That leads to a steady stream of repeat sales.

Its industries are have high regulatory standards. Whether it’s aircraft, drug development or water purity, competing isn’t straightforward. That makes it difficult (or impossible) for customers to switch to alternative providers. And that generates good pricing power for Porvair.

In terms of cyclicality, it’s important that the firm’s products are typically maintenance expenses. That makes demand fairly stable, even when companies aren’t expanding.

Source: Fiscal.ai

The firm also has excellent cash conversion metrics. Over the last 10 years, it’s consistently turned over 75% of its net income into free cash.

Dead money?

This all sounds positive, but it raises an obvious question. If the business is so good, why has it essentially gone nowhere since 2021?

The reason’s twofold. One’s growth – Covid-19 created a surge in demand for lab equipment that hasn’t been maintained since. As a result, Porvair’s had to contend with higher inventory levels and weaker demand. And this has been a challenge for the business.

The second’s valuation. Five years ago, the stock was trading at a price-to-earnings (P/E) ratio of 27, which is pretty high. As Warren Buffett points out, it’s possible to pay too much even for an outstanding business. And I think this might have been the case in 2021.

Now however, things are different on both fronts. Demand for lab filters started to recover in 2025 after a long period of high inventory levels.

Source: Fiscal.ai

On top of this, the stock’s now trading at a P/E multiple below 18. So I think the business has had enough time to catch up with the share price.

Risks and opportunities

Porvair shares are down 15% since the start of the year. And a big reason for this is the ongoing conflict in the Middle East. The firm’s relatively well-protected from cyclical ups and downs, but it isn’t immune to a global recession and that’s a risk right now.

From a long-term perspective though, there’s a lot to like about the business. And the current share price looks attractive to me. Opportunities like this don’t come around often, so I think investors should give this one serious consideration right now.

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That’s almost certainly more than you can get by keeping that sum in cash. So a Stocks and Shares is definitely worth considering for anyone with excess savings – with a few caveats…

Down years

An average return of 9.64% means Stocks and Shares ISAs tend to do better than cash over time. But there are periods when they do worse. 

In 2022-23, for example, the average ISA lost around 3% of its value. At the same time, cash savings went up slightly in the way that they pretty much always do.

Nobody knows when the next down year for the stock market will be. But that doesn’t mean people should stay away from investing entirely – it means they should look to be strategic.

The best way to deal with stock market volatility is to avoid being in a position where you might have to sell when prices are low. And that means being careful with what you invest.

As a rule, nobody should look to invest cash they think they might need in the near future. In other words, only excess savings should be considered for a Stocks and Shares ISA.

This limits the risk of having to pull money out when prices are low. And from there, it’s about finding the right investing strategy. 

Diversification

One rule that virtually everyone agrees on in the stock market is that it’s important to build a diversified portfolio. In other words, owning assets in a variety of industries and geographies.

In this spirit, one idea I have for investors getting started with a Stocks and Shares ISA to consider is Porvair (LSE:PRV). It’s not a household name, but it’s well worth a look.

Porvair manufactures and sells filtration equipment into the aerospace and life science industries. In other words, it’s one company, but it makes products for different end markets.

Both of these are cyclical, which means demand can wax and wane and this can create a risk. But being exposed to both of these helps make the business more resilient and stable overall. 

Covid-19 is a great example of this. During the pandemic, demand for lab equipment was very strong while travel restrictions meant aerospace went through a major downturn. 

Afterwards, though, air travel resumed and demand recovered, but high inventory levels in labs caused sales to this market to slow. This is the benefit of diversification in action. 

Risks and rewards

I think anyone looking to get a better return on their excess cash should definitely consider a Stocks and Shares ISA. While returns aren’t guaranteed, previous results have been strong.

Even for long-term investors, diversification is important. That helps reduce the effect of the inevitable pressures that all industries face from time to time on an overall portfolio.

Porvair’s recent record is a good example of this in action. While it’s not enough to diversify a portfolio by itself, I think it could be a good place to consider starting.

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I’m very keen to add them all to my portfolio, but buying at the wrong price is always a bad idea. So a stock market crash – or something of that sort – could be just what I’m looking for.

Experian

There aren’t many FTSE 100 stocks that I think are genuinely expensive right now. But Experian (LSE:EXPN) is one of them – and there are good reasons why this is the case. 

The business is incredibly difficult to disrupt. Its credit scores are drawn from databases that are virtually impossible for new competitors into the industry to replicate. 

On top of this, it sells a product to mortgage lenders that costs a fraction of the risk it helps protect against. That’s an incredibly strong position to be in. 

There have been concerns that Fair Isaac Corp might try to bypass the firm by going direct to lenders. That’s a risk that I think is serious at today’s prices but could be less so at lower ones.

Porvair

Porvair (LSE:PRV) is a stock I used to own, but I sold it when I thought it got too expensive. The firm makes filtration products that are used in laboratories and aircraft.

The latter has been absolutely flying recently – no pun intended. And that means the risk of a cyclical downturn (that’s naturally present in both markets) is unusually high right now. 

What really stands out, though, is that both markets are heavily regulated. This creates a significant barrier to entry for competitors and helps Porvair generate strong recurring sales.

With a market value of £373m, the stock is one a many investors might not have on their radars. But I think they should consider taking a closer look before the next market crash. 

Danaher

Danaher (NYSE:DHR) is an odd S&P 500 stock. Despite being firmly out-of-favour with the market at the moment, it still trades at some relatively high multiples. 

The firm is a US supplier of life sciences equipment. And it’s built a strong position by acquiring other businesses and helping make them more efficient.

Despite the industry being under pressure recently, Danaher shares have only faltered slightly. That’s actually quite impressive for a stock trading at a price-to-earnings (P/E) ratio of 46.

Regulation is a risk in this industry and this is playing out at the moment. So while I want to own the stock very much, I find it hard to justify paying today’s prices. 

Crash opportunities

As I see it, investing is about balancing two things. One is being on the lookout for buying opportunities and the other is being disciplined about valuations. 

I think almost every stock comes to trade at a bargain price at some time or other. And a stock market crash is the kind of thing that can make this happen. 

With that in mind, I think it’s a good move to have a set of ideas about which stocks to buy ready for when prices fall. And Experian, Porvair, and Danaher are three from my list.

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The first is a firm that looks set to benefit from huge growth in its addressable market. And the second is a stock that might be too cheap after a negative reaction to its H1 results. 

Cohort

A 101% gain makes Cohort (LSE:CHRT) one of the best-performing UK shares of the last year. But despite trading at a price-to-earnings (P/E) multiple of 32, I think it’s still worth looking at.

The stock has been pushed higher by news that European defence spending is set to grow significantly over the next few years. As such, the market for its products just got a lot bigger.

Over the last few years, Cohort has assembled an impressive line-up of businesses focused on defence technology. As a result, it’s in a strong position when it comes to growth. 

It’s worth noting though, that a growing market might make acquisitions – which the company has relied on in the past – more challenging. And this is a risk that’s worth keeping in mind.

The company, however, is already starting to see signs of growth in its order book. And the shift to higher defence spending could well be durable, rather than temporary. 

It’s hard to overstate how significant the shift in European defence spending could be for firms like Cohort. That’s why I think it’s worth considering even after climbing over 100% in a year.

Porvair

Porvair (LSE:PRV) makes filtration equipment for aircraft and life sciences applications. And with the stock falling almost 10% after its latest update, I think it’s in interesting territory.

Sales and profits came in higher than the previous year, but the rate of growth was slower than during the previous period. This was mostly due to some weak demand in the aerospace market.

In general, the supply chain for aerospace is extremely complicated. And this can be a risk for companies – like Porvair – that sell components to aircraft manufacturers.

From a long-term perspective though, I think the stock looks attractive. Regulation creates high barriers to entry and generates a significant amount of recurring revenue for the business.

Furthermore, the falling share price makes the stock unusually cheap. Based on the company’s adjusted metrics, it trades at a P/E ratio of below 15.

Analyst price targets are around 17% higher than the current level of the stock. And I agree that it looks cheap, so I think investors seeking stocks to buy in July should take a look.

Buying British

Sometimes, the best way of finding stocks to buy is to avoid overthinking and overcomplicating things. A stock market crash when everything suddenly becomes cheap is a good example.

Other times, however, looking beyond the most popular names can be very rewarding. And this is what I think of the situation with UK shares at the moment. 

Both Cohort and Porvair are too small to generate much attention from analysts. But I think investors should have these stocks on their radars and consider buying them in July.

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Cohort

One example is Cohort (LSE:CHRT). The company is a collection of six smaller businesses focused on defence technology, specifically communications and sensors. 

With this type of business, demand is highly sensitive to political (in)stability. Obviously, this isn’t under the company’s control and this creates a risk that can’t be ignored.

The firm’s growth strategy however, has been very successful. It looks to acquire businesses that can complement its existing operations and leave current management teams in place.

This is the kind of model that the likes of Diploma and Halma have applied very effectively. And I think investors should keep an eye on Cohort as a business with a lot of potential.

Porvair

I also think filtration equipment manufacturer Porvair (LSE:PRV) is worth paying attention to. Its products help keep aircraft fuel clean and lab samples free from contaminants. 

These industries can be cyclical and this is a risk. With aerospace, for example, investors should pay close attention to the ongoing issues at Boeing and (to a lesser extent) Airbus.

Importantly though, these industries also have high barriers to entry. Both aircraft equipment and laboratory filters need to meet strict quality standards and specifications. 

This means customers have limited (or no) choice when it comes to suppliers and this translates into a lot of pricing power for Porvair. In this regard, it reminds me of Rolls-Royce.

Forterra

Forterra (LSE:FORT) is a straightforward business – it makes bricks. And a combination of efficient manufacturing and UK-based production helps it maintain lower costs than its rivals.

The business is naturally vulnerable to downturns in UK construction output. Furthermore, the debt on its balance sheet has been increasing over the last few years, which creates risk.

On the plus side, the government is aiming to boost housebuilding. And this should mean that demand for bricks is set to pick up before too long.

Lower costs than competitors is a big advantage for any business. It’s the advantage Howden Joinery Group has and I think there’s something similar here.

Off-the-grid

With high-quality shares, it’s often hard to find opportunities in stocks that other investors are looking at. These usually present themselves when the market overreacts to some news.

A bit further off the beaten track, however, there are companies that don’t necessarily get the attention they deserve. And that can mean buying opportunities come around more often. I think Cohort, Porvair, and Forterra are stocks investors should think seriously about buying.

At the very least, they should take a closer look and keep an eye on them going forward.

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Without taxes on capital gains and dividends, investing regularly in an ISA can be a great strategy for trying to build wealth and earn passive income. But finding the right stocks to buy each month is also important.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Growth: Porvair

In the world of growth, Porvair’s (LSE:PRV) a stock that could be in for an interesting February. The company makes filtration products for aerospace, laboratory, and industrial settings.

Its products benefit from significant barriers to entry and earnings per share have grown strongly over the last decade. But selling into cyclical end markets can bring risk when things turn downwards.

With both Boeing and Airbus reporting production problems recently, aircraft production’s been lower than in previous years. And that might reduce demand for Porvair’s products in the short term. 

The company reports earnings on 10 February and I’ll be watching closely. If the stock falls in a meaningful way as a result of any short-term disruptions to sales, I’ll be looking to take advantage.

Value: Lloyds Banking Group

Shares in Lloyds Banking Group (LSE:LLOY) got a big boost in January with some positive news about the ongoing investigation into car loans. But I think there could still be interesting value on offer.

On a price-to-book (P/B) basis, the stock’s roughly where it was five years ago. By contrast, Barclays and NatWest are trading at much higher multiples than they were as a result of interest rates rising. 

The car loan investigation’s still a risk – and more so for Lloyds than the other UK banks. But the question for investors is whether the current share price is enough to offset this.

I think it might be. That’s why I’ll be paying close attention to what management has to say on the subject when the company reports earnings on 20 February. 

Dividends: Supermarket Income REIT

With dividend stocks, I think the real estate sector looks interesting. And shares in Supermarket Income REIT (LSE:SUPR) are trading at their lowest levels since the company went public in 2017.

Tesco and Sainsbury’s account for a lot of the firm’s income. And while neither’s likely to default on its rent, a heavy reliance on them doesn’t put Supermarket Income REIT in a strong negotiating position.

However, the stock currently has a 9% dividend yield, which might provide a decent return by itself. On top of this, the company’s rental contracts increase with inflation, which also removes this threat.

I’m generally wary of stocks that come with high dividend yields. But while there are clear limitations with Supermarket Income REIT, I think dividend investors should consider it seriously right now. 

UK stocks

I think February could be an interesting month in the UK stock market. I’ll be looking closely when Lloyds and Porvair report to see if a long-term opportunity’s being masked by short-term issues.

If not, Supermarket Income REIT might be the stock for me to buy. A lot of my investing this month will come from reinvesting dividends, so I have time to see what happens while I wait for the cash.

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Our monthly Best Buys Now are designed to highlight our team’s three favourite, most timely Buys from our growing list of small-cap recommendations, to help Fools build out their stock portfolios.

Why we like it: Another recurring revenue business, Porvair (LSE: PRV) is a designer and manufacturer of specialist filters for a wide range of end sectors. This isn’t a sexy Software as a Service business with monthly or annual recurring revenue counted in the hundreds of millions and growing at double-digits. But it does have recurring revenue all the same. These recurring revenues are great for both management teams and outside investors seeking to forecast how the business will develop in the years ahead.

While Porvair and the filters it makes aren’t the most exciting subject ever, its often-patented filters aren’t easily interchangeable by its customers, and the company generally watches as the cash rolls in when these specialist filters are replaced at regular intervals. Even if the business itself isn’t glamorous, since the Financial Crisis the steady, profitable growth and shareholder returns the company has generated have been quite exciting. We think Porvair is a great example of a boring, dependable business that could generate impressive returns going forward too.

Why we like it now: Typically the shorter Porvair’s trading updates are, the better the news they contain. And that was the case with the very short full year trading update released earlier this week. We were told constant currency revenue growth for the full year should be around 13% (9% actual due to the strengthening of the pound) – a marked acceleration from the 8% (5%) figures posted in H1 respectively. Adjusted earnings per share are also expected to be slightly above market expectations, which would put Porvair on a P/E just shy of 18x. We think that’s attractive given the company’s net cash position, cash generative operations, high degree of recurring revenue, and organic and inorganic growth potential. . 

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In general, quality growth stocks often come with prices to match. That’s not unreasonable and – as Warren Buffett says – buying a wonderful company at a fair price is better than the other way around. 

The best opportunities though, are shares in growing businesses that trade at bargain prices. And for investors who are willing to look beyond the major names, I think there are a couple that stand out.

Porvair

Shares in Porvair (LSE:PRV) have really struggled in August, but the company’s long-term competitive advantages still seem to be intact. To my mind, that makes a really exciting proposition.

The company makes filtration equipment for a variety of end markets, including aerospace, laboratories, and petrochemicals. And the barriers to entry for competitors are huge. 

Porvair focuses on products that are either mandated or regularly replaced. This generates repeat business and makes it almost impossible for customers to switch to alternative suppliers.

The risk with this type of business is that these end markets can be highly cyclical. This manifested itself during the pandemic in the case of aerospace and more recently with weak demand for lab equipment.

There’s not much Porvair can do about this. But its shareholders can try to limit the investment risk by buying the stock at a good price. 

With the shares trading at a forward price-to-earnings (P/E) multiple below 16, I think the time is now. That’s why the stock is on my list to buy in September. 

Five Below

It’s been a strange few days for Five Below (NASDAQ:FIVE). The stock jumped after its own earnings report, but fell back after fellow discount retailer Dollar General warned about consumer weakness. 

After all that, the stock is back in territory where I’ve been buying it recently – at a P/E ratio of around 15. So I’m looking to add to my investment this month. 

Five Below has been struggling with weak like-for-like sales as US consumers – particularly those with the lowest household incomes – cut back on their spending. The risk is that this might continue.

In the short term, however, the company has a way of limiting the damage. It’s attempting to increase its store count by about 12% per year for the next few years. 

With the average store breaking even within a year, the firm has been able to fund its growth without taking debt onto its balance sheet. That puts it in a strong position to weather a cyclical downturn.

Over the long term, I think the company’s low prices will prove durable. And rapid store expansion means I’m expecting strong growth for what is currently a pretty reasonable price. 

Market timing?

I’m not a believer in trying to time the market. But I do think it’s wise to pay attention to which stocks are unusually cheap. 

Sometimes, these can be extremely high-quality businesses that are going through short-term difficulties. And when that happens, there can be great opportunities for investors.

That’s what I think has been happening with Porvair and Five Below recently. They operate in different industries and different countries, but the same core of growth at reasonable prices is still there.

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Over the last decade, the average annual return from a Stocks and Shares ISA has been 9.64%. That’s a terrific result for investors, but achieving it isn’t entirely straightforward.

An ISA brings protection from taxes on dividends and capital gains, but it’s not a magic ticket to investment returns. Identifying which stocks to buy is still key to getting a supercharged result.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Apple

Top of my list of stocks to buy (and one I already hold) to supercharge an ISA is Apple (NASDAQ:AAPL). I think the iPhone manufacturer stands to be a key beneficiary of the rise of artificial intelligence (AI). 

The company stands to benefit in two ways. First, I’m expecting AI developments to boost iPhone sales as the latest releases enjoy strong consumer demand. 

Second, Apple’s dominant position in the smartphone market puts it in a powerful position. The likes of Microsoft and Alphabet have to go through its ecosystem to reach the most customers.

The biggest risks for investors are twofold. The first antitrust – I don’t see a competitor disrupting the business, but there’s a real chance of the authorities breaking up its walled garden. 

The second is China. Apple’s presence in the country is significant both in terms of manufacturing and customers and tensions with the US have already started creating issues for the company. 

Despite the risks, both the stock and the business have been terrific performers over the last five years. And I expect this to continue, which is why I’m looking to add to my investment.

Porvair

With a market-cap of £311m, UK manufacturer Porvair (LSE:PRV) is at the other end of the scale in terms of size. But it’s another stock I might buy for my ISA. 

The stock’s been up and down lately, but the underlying business has been growing steadily. And I think there could be more to come from the company. 

Porvair’s filtration products have important features that generate repeat business. Its aerospace filters are specified in the design of airframes and its lab equipment’s disposed of after each use.

This makes the business difficult to compete with and puts it in a strong position to generate revenue growth over the long term. That’s why I’m looking to buy the stock. 

The end markets the company sells into can be cyclical. Aerospace demand fell sharply during the pandemic and lab equipment has been working through excess inventories since then. 

That brings a risk of short-term volatility in sales and profits. But, over time, I think the company stands to do well, which is why I see it as a stock that could supercharge returns from an ISA.

Growth stocks

Both Apple and Porvair are growth stocks. I’m expecting both to use the profits they generate at the moment to increase their earnings per share significantly in future. 

In addition, the underlying businesses have dominant market positions that are difficult to disrupt. That’s why I think both could be great long-term investments for my Stocks and Shares ISA.

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I like the firm’s long-term record of steady operational progress. Over the past 10 years, revenue’s notched up a compound annual growth rate (CAGR) of 6% and adjusted earnings per share of 10%.

They’re not the kind of exciting numbers that raise pulses to dangerous levels. However, the financial and trading record shows consistent improvement. In short, the stock looks a decent candidate to consider for a long-term investment.

Porvair operates in the specialist filtration, laboratory and environmental technology sectors. The directors aim to focus on markets with long-term growth potential. On top of that, the company seeks to serve areas where “product use is mandated and replacement demand is regular”.

Well-financed organic and acquisitive growth

I reckon that approach might be one of the key drivers behind the firm’s consistent growth and trading over the past few years.

Porvair’s operating segments are Aerospace & Industrial, Laboratory and Metal Melt Quality, all of which the directors insist have “clear” long-term growth drivers. Meanwhile, the progress of the overall business has been both organic and via acquisitions. So I’d expect more of the same ahead.

Today’s (1 July) interim results statement shows year-on-year revenue grew by 5% in the six months to 31 May. Although at constant currency rates, the rise was 8%.

However, currency adjusted underlying sales revenue actually fell by 3%. The overall rise occured because of the effects of prior acquisitions.

That weakness in like-for-like performance was caused by softening in the industrial and laboratory consumables markets. There was a trend among customers of reducing inventory levels “and more normal lead times through 2023 and 2024”.

De-stocking combined with adverse currency exchange rates to cause the firm’s profit margins to drop a bit too.

The situation demonstrates that Porvair’s operations are sensitive to general economic and cyclical influences. So the growth trajectory here’s unlikely to ever be straight up. As with most businesses, we could see volatility for operations and the stock over the coming years.

It’s one of the risks here and has the potential to cause a losing investment for shareholders. The directors said today that “Inconsistency in trading patterns across the Group is not unusual”.

Anticipating a strengthening second half

Nevertheless, the company expects underlying market growth to return during the second half of the trading year. On top of that, the long-term growth drivers of Porvair’s operating sectors are robust. And chief executive Ben Stocks said the business looks set to move into 2025 “in good shape”.

City analysts anticipate mid-single-digit percentage advances for earnings and the dividend next year. Set against those estimates and with the share price near 668p, the forward-looking earnings multiple is just below 17. And the anticipated dividend yield’s a little under 1%.

That’s not the cheapest valuation in the world. But the balance sheet looks strong and multi-year trading performance has been consistent overall. I’d dive in with deeper research, then watch this one with a view to considering the stock on market dips and down-days.

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