2 turnaround stocks you might want to buy in 2018

News of a solid sales uptick at Premier Foods (LSE: PFD)  has sent the firm’s share price respectably northwards in Tuesday trading. The small-cap was last dealing 4% higher on the day.

The Mr Kipling and Bisto manufacturer advised that revenues rose 4% during the 13 weeks to December 30, to £261.4m, indicating a healthy sales improvement in recent months. Sales rose 2.6% during the nine months to end-December, Premier Foods advised.

In particular the St Albans company paid tribute to its tie-ups with Nissin Foods and Mondelez International, which both contributed strongly to sales growth in the period. Premier yesterday talked down recent media speculation that it was about to sell its Batchelors noodles division to Nissin.

What’s more, today’s release underlined the terrific brand power that Premier carries, the business having seen its market share improve across six of its eight key brands during April-December.

Grab a slice

Now Premier has been the subject of significant earning slides in recent years but, thanks to the impact of massive restructuring, the business is finally expected to put together a period of sustained profit improvements.

City analysts are forecasting an 8% bottom-line rise in the year to March 2018, and another 6% advance is forecast for the following period.

It still faces a difficult backdrop for the grocery market in Britain that could see current earnings estimates take a hit. And of course the firm’s debt mountain also remains a concern, but it today affirmed its belief that net debt will fall year-on-year during the current fiscal period.

Having said that, many investors would consider the company’s ultra-low forward P/E ratio of 5.3 times — well below the bargain watermark of 10 times — to more than reflect the likelihood of downgrades to profits forecasts.

And with sales in international markets continuing to go from strength to strength as overseas sales exploded 26% in the last quarter, now could prove a canny time for long-term investors to take a slice of the company.

Cleans up nicely

Those looking for another brand beauty with solid earnings potential may want to look at PZ Cussons (LSE: PZC) too.

The FTE 250 giant spooked investors last month after it advised that operating profit during June-November would fall 10% year-on-year as tough economic conditions and competitive pressures in Europe and Africa offset strong profitability in Asia.

However, Cussons added that performance in these divisions is likely to improve during the second fiscal half thanks to “new product launches and distribution expansion, together with the usual seasonal uplift in Nigeria.

Indeed, I am confident that range expansions across beloved brands, from Imperial Leather soaps and bath products to Original Source shower gels, should help Cussons’ bottom line recover very soon. City analysts, who are forecasting a 2% earnings drop for the 12 months to May 2018, agree with my viewpoint, and expect the household goods giant to fire back with an 8% increase in fiscal 2019.

And in the long run I am confident Cussons’ emphasis on emerging markets should deliver significant returns as rising disposable income levels there bolster demand for the manufacturer’s wares. I reckon the firm remains a top buy today despite its slightly-toppy forward P/E ratio of 20 times.

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But Cussons and Premier Foods are just a couple of the London-listed heroes you can buy today and potentially live off in the years to come.

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Royston Wild has no position in any of the shares mentioned.  The Motley Fool UK owns shares of PZ Cussons. 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.

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