31 Jan 1 cheap income stock and one growth monster I would buy for 2018
Consumer goods stocks are considered to be some of the market’s most defensive investments, and as a result, tend to trade at a premium to the broader market.
However, Dairy Crest (LSE: DCG) bucks this trend. Unlike its peers, shares in the company currently trade at a mid-teens earnings multiple compared to the likes of Unilever, which currently trades at a forward P/E multiple of 20.4.
I believe that Dairy Crest does not deserve this lowly valuation. Indeed, as the company reported in a trading update today, sales are expanding steadily, and the outlook for the group is bright.
Too cheap to pass up
The producer of dairy brands Cathedral City, Clover, and Country Life today reported that for the nine months to the end of December, revenue from these key products rose 7% year-on-year. A spreadable version of the company’s leading cheese brand, Cathedral City has won ‘Product of the Year 2018’ in the UK cheese category. Meanwhile, all of the group’s spreads brands reportedly continued to gain market share throughout the period.
The company is set to report its full-year results for the 12 months to the end of March 2018 at the end of May. City analysts are expecting the firm to report earnings per share growth of 4% and earnings growth of between 5% and 6% for the next two years.
Nevertheless, despite this steady growth, and the company’s defensive nature, the shares trade as a relatively modest forward P/E of only 15.5, falling to 14 for the year ending 31 March 2020. As well as this modest valuation, it also supports a dividend yield of 4% and the payout is covered 1.6 times by earnings per share.
All in all, I believe this defensive income stock could make a great addition to your portfolio.
Small-cap biotech firm Angle (LSE: AGL) flies under the radar of most investors, but I believe you should not overlook this future growth monster.
It is a leader in the process of liquid biopsy, which involves searching for cancer cells in blood samples, or pieces of cancer DNA floating in the bloodstream in an attempt to find the illness at an early stage.
The market for any potential products is massive and Angle is already making a dent. According to the firm’s interim results for the six months to 31 October, 145 of its Parsortix liquid biopsy systems have been deployed around the world (up from 120 in the previous period). Further, during the period the company completed two large-scale ovarian cancer clinical studies, which demonstrated “potential for a Parsortix-based blood test to significantly outperform current standard of care.”
Unfortunately, as this business is still in its early stages of development, for the next few years City analysts are expecting it to report losses, although sales are expected to leap 600% to £7.8m by 2020, from an estimated £1.1m for the fiscal year ending 30 April 2018. A recent placing that raised £14.4m net of expenses should give the company enough financial firepower to be able to keep the lights on for next two years as it progresses towards profitability.
A safe buy?
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Rupert Hargreaves owns shares in Unilever. The Motley Fool UK owns shares of and has recommended Unilever. 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.