Best shares to buy

Granted, waste management and disposal isn’t the most exciting sector in the world. However, collecting and disposing of waste effectively is vitally important in the 21st century. I think it’s only going to become more critical as we advance and the world becomes increasingly focused on recycling. 

To that end, management recently decided to acquire the collections business and certain recycling assets from Viridor Waste Management Limited. The group will pay £126m, which will give it exposure to a diverse base of 21,000 customers and 15 depots across the UK. 

The acquisition will expand the group’s collections business and recycling capabilities while solidifying its leading position in UK sustainable waste management. 

While I believe this acquisition will help drive the company’s growth in the years ahead, I’m well aware that Biffa will have made an expensive mistake if it goes wrong. This is probably one of the biggest challenges the enterprise faces today. Successfully buying and integrating bolt-on businesses can be challenging. There’s no guarantee this deal will be a success. 

Still, I’d buy the stock today, considering its growth potential in the long run and its existing position in the UK waste market. 

UK shares on offer

Another company I think could be one of the best shares to buy today for my portfolio is Porvair (LSE: PRV). I’m attracted to this specialist filtration, laboratory and environmental technology group for its intellectual property. It owns the rights for the design and development of filters for the aerospace and science industries, among others. 

I think these are the sort of industries that should experience steady growth as we advance. And as Porvair is often a key supplier, it should report rising demand. 

Management seems to agree. Alongside the company’s half-year results for the six months to the end of May, CEO Ben Stocks noted that the underlying drivers of growth for the business include “tightening environmental regulations; the need for clean water; expansion of analytical science and the drive for manufacturing efficiency” that all remain in place. Demand for these sectors is likely to remain high for some time. 

The company also has exposure to be aerospace industry, which proved to be a thorn in its side last year. Aerospace sales could continue to remain under pressure, especially if the industry struggles to recover after the pandemic. This could hold back overall group growth. 

Nevertheless, despite this risk, the company remains on my list of the best shares to buy now. That’s why I’d acquire it for my basket of UK stocks today. 

How should markets react? Time will tell, but I don’t think it will be pretty.

Is another stock market crash coming?

If you’ve done your research and have the cash to invest, you may not get a better opportunity to purchase shares in quality companies at bargain prices.

Historically, the worst market crashes have not occurred on single days, but on multiple days in relatively quick succession, according to data from Refinitiv.

The big stock market crash known as Black Monday occurred on 19 October 1987. On that day, the FTSE 100 fell 10.8%, but it also fell a further 12.2%, 5.7%, and 6.2% on single days during the following week. These were all historically large falls for the FTSE 100, and all four occurred within an eight-day period.

A similar pattern appeared in autumn 2008 when the FTSE 100 experienced four notable one-day falls of between 5.7% and 8.8% in a one-month period.

Although this may be alarming at first glance, for those investors looking to snap up shares in companies at rock-bottom prices, there could be opportunities ahead.

This week we saw a repeat of 1987’s Black Monday when markets around the world crashed in response to a 30% drop in the price of oil and increasing worry about the virus. I don’t think this was a one-off event.

To be prepared is to be forearmed

Many British shares have been suppressed in recent years in response to Brexit and worry surrounding a global slowdown caused by the US-China trade war. With these new concerns thrown into the mix, some UK shares are becoming insanely cheap. 

Of course, a few will fall too far to recover, which is why due diligence is so important. I’d avoid oil, airline, or cruise stocks for now, and I think restaurant or entertainment stocks will be out of favour for some time too.

Niche growth areas

One stock I like the look of is Porvair (LSE:PRV), a specialist filtration and environmental technology company. Its filtration equipment is used in aerospace, bioscience, energy, water, and industrial applications.

The company released positive preliminary results last month, and the CEO stated it’s well positioned to benefit from global trends. These include tighter environmental regulations, growth in analytical science, the expansion of air travel, the replacement of plastic by aluminium, and the drive for manufacturing process efficiency.

The expansion of air travel may no longer be so promising, but I think growth in the other areas may increase. Of course, supply chain issues could have an impact in the near term.

Over the last five years, the Porvair share price has risen 119%. Its price-to-earnings ratio is 27, which is too high to call a bargain share. However, you could get value for money if you’re buying in a market crash. Porvair stock also has a small dividend yield of 0.77%.

I particularly like that Porvair has a low debt ratio and is specialising in niche areas of growth. I think it is one company that can recover well from this current market turmoil and shine in the better days ahead.

Standard Life’s share price is up 20% from a year ago, but it hasn’t been a worry-free ride and the price has fluctuated considerably over this time.

Recently analysts have been downgrading the firm, and some have predicted that a dividend cut is on the cards. The current dividend yield is 6.9% but it’s only covered 1.3 times by earnings per share. The cash Standard Life is generating is weaker than the earnings it is generating, which is another reason for these predictions.

Hurdles and headwinds

When Standard Life and Aberdeen Asset Management merged in 2017 it was valued at around £13bn but today that valuation has almost halved to £7bn. Managing the merger has not been a smooth process with escalating costs and obstacles to overcome along the way.

Since the merger, the group has seen an improvement in its key asset classes such as Asian equities and emerging markets. So, it’s not all bad news.

Its price-to-earnings ratio (P/E) is 7 and earnings per share are 46p. While assets under management are declining, Standard Life also has many stakes in other companies such as FTSE 100 Phoenix Group and India-based HDFC Life Insurance and HDFC Asset Management. This diversification could keep it afloat if UK headwinds continue.

The Woodford fallout hasn’t helped the Standard Life Aberdeen share price either. It has cast a shadow over the entire industry.

Keith Skeoch, Standard Life CEO, has said we should learn lessons from the Woodford scandal and that it’s time for a shake-up of the governance framework used for UK retail funds. Opting for processes more in line with pension funds and larger investors should increase confidence in the sector.

Personally, I think there is too much uncertainty and risk surrounding this share for my liking. I would avoid for now.

Environmental market leader

Porvair (LSE:PRV) specialises in filtration and environmental technology, which is a growing necessity in our modern world.

The Porvair share price rose over 62% in 2019 and has risen a further 6% year to date. This has pushed up its P/E ratio, which is now on the high side at 32. Earnings per share are 23p, up from 22.1p in 2018 and 19.5p in 2017. It offers a dividend, but it’s very low with a yield of less than 1%.  

Porvair operates three divisions: aerospace and industrial, metal melt quality, and laboratory. Aerospace and industrial is its best performing, with 13% revenue growth reported at the end of November.

It is well placed to benefit from the ESG investing trends that are sweeping the investment industry. Porvair is a global business, so downsides to consider are the US-China trade war, which could continue to suppress growth, as could the Coronavirus outbreak.

However, it has shown consistent growth in recent years and has a healthy balance sheet to match. It has been growing through acquisitions and is a market leader in its field. With more stringent environmental regulations being put in place globally, this has a positive effect on demand for Porvair’s products. Despite its high P/E, I continue to like this stock and consider this FTSE All-Share company a ‘buy‘.

There’s a lot of names I wouldn’t go near in the UK AIM market, but if you focus on shares with low debt, rocketing margins and profits, you could make a great start to growing real wealth.

The businesses I’ll consider today operate in entirely unsexy industries. They’re not flashy. They underpromise and overdeliver, which I like immensely.

Begbies Traynor

Insolvency specialist Begbies Traynor (LSE:BEG) makes a great investment case. It has little debt despite the fact that bosses have been on a carefully-considered shopping spree in recent months, hoovering up smaller firms to boost growth at the £111m market cap firm.

A July 2019 placing raised £7.8m to fund its strategy of buying out profitable smaller insolvency specialists and three acquisitions (Alexander Lawson Jacobs, Ernest Wilson and Regeneratus) produced revenue of £5.9m and pre-tax profits of £1.8m in their last financial years.

Founder and executive chairman Ric Traynor is still the majority shareholder and December’s half-year results gave us a glowing report of a business in rude health, especially across its property advisory and insolvency arms.

Traynor revealed that his firm had “strong half-year financial performance“, decreased net debt from £6.3m to £2.3m over the period, with revenue up 21% and improved operating profit margins of 13.2%.

Brexit uncertainty and a weak economic outlook has claimed the lives of tens of thousands of businesses this year alone.

In fact, UK government figures for Q3 show insolvencies at a record high, with 30,879 going through the process. This is 22.7% up on the year and numbers are at their highest quarterly levels since 2010. Put another way, while more companies than ever are failing, business is booming for Begbies Traynor.

With earnings per share growing 24% over the last half, the price tag on the shares is falling: a forward P/E ratio of 14.5 makes BEG very attractive in my opinion.

The market has slept on the Begbies share price thus far, but with results like these and ever improving profit margins, investors are going to start catching on to the trend.

Porvair

Businesses that can carve out market-leading positions will attract slightly higher valuations but are still worth investing in.

CEO Ben Stocks has described how his air filtration group Porvair (LSE:PRV) has grown despite global trade issues weighing down less nimble firms, with pre-tax profits shooting up 41% to £7.4m year-on-year in the six months to the end of 31 May.

The board has increased dividends with earnings per share up 36% over the same period.

I like positive language in company reports and Porvair has this in abundance.

Order books are “robust” for the second half of the year, with prospects “encouraging”, say management. Full-year earnings will be ahead of expectations, with revenue 30% higher thanks to “strong growth” fuelled by demand for its aerospace and industrial products.

The business also has net cash of £3.9m, which is around half the level it was at in 2018, but this is due to £14m of spending on acquisitions and new growth prospects.

The Porvair share price won’t hang around at these levels for long: it has already jumped 131% in the last five years but I think there’s further it will go.

According to leading data and analytics firm GlobalData, 5G adoption in the UK is forecasted to reach over 26% of total mobile subscriptions by 2024. I think IQE’s association with driving 5G tech is possibly its main attraction to investors, but my concern is that it’s overvalued in terms of what it can actually deliver.

In the past six months, the IQE share price has fallen 11.5%. Its recent trading update stated that revenues are down 9% year over year, thought to be due to a combination of factors including weakness in the smartphone market, international trade tensions, a technology market slowdown, and a fall in demand from a major customer of indium phosphide lasers.

Given that IQE has manufacturing facilities in the US, Europe, and Asia, it should be well positioned to adapt to global supply chain trends. However, the £443m company’s cash balance is diminishing, and it reported an adjusted operating loss of £1.9m, which has resulted in negative earnings per share. To adapt globally, money reserves are necessary, no matter how well placed you are. 

While it is trading on a ridiculously high price-to-earnings ratio of 476 times, I think it’s one to avoid for now.

Porvair share price rise

Alternatively, I’d consider looking to filtration and environmental technology specialist Porvair (LSE:PRV). The Porvair share price has risen a staggering 49% since 2 January, outperforming both the industrial engineering sector and the FTSE 100. 

Porvair has three operating divisions; aerospace and industrial, laboratory, and metal melt quality. The aerospace and industrial division has boosted Porvair’s orders in recent months. It serves global specialist filtration markets throughout the UK, US, Germany, the Netherlands, and China.

The company employs a growth-through-acquisitions strategy and recently acquired Dutch filtration company Royal Dahlman for £6.9m. It has a low debt ratio of under 19% which affords it the flexibility to continue to grow in this way. Porvair also grows organically through its research and development of specialist filtration and environmental technology.

Porvair has a £286m market cap and trailing price-to-earnings ratio of 26 times. Its earnings per share are 23p and it offers a small dividend yield of 0.8%. Porvair achieved revenue growth of 15% in the nine-month period ended 31 August. 

Many Porvair products are used to benefit the environment. For example, it has developed water analysis equipment that ensures drinking water is fit for consumption, and filters that monitor the emissions of petrochemicals into the sea.

Its nuclear filters prevent fissile emissions and its metals filtration products prevent contamination of aluminium and iron. The company is committed to improving its environmental profile and has procedures in place to control its use of solvents through its processes. 

With climate change increasingly on everyone’s radar, cleaner air is on our minds and environmentally friendly stock picks are on the rise. It’s hard to find a truly sustainable company to invest in, but I like that Porvair’s products can be used to the benefit of the planet. 

The company is Bunzl (LSE: BNZL), which supplies consumable items such as food packaging, cleaning materials and personal protection equipment to thousands of customers all over the world.

I view this firm as boring-but-brilliant. No one gets excited when you tell them about it. But, in my view, the firm’s financial performance over the last decade or so has been deeply impressive.

Why buy today?

This defensive business has often looked expensive to me in recent years. But the BNZL share price has fallen by 16% since the middle of April, when the firm warned sales growth in North America slowed to 1% during the first quarter of 2019.

Analysts’ trimmed their profit forecasts in response to this cautious message. Bunzl’s adjusted earnings are now expected to be broadly unchanged in 2019, compared to last year. However, this group remains highly profitable, with a return on capital employed of 14% last year.

Growth opportunities remain too. The group has a proven model for expansion by buying small ‘mom and pop’ companies operating in its markets. Integrating these small businesses into the Bunzl machine usually generates cost savings and new sales opportunities.

I feel confident this business will continue to perform well, even if growth does slow. The stock now trades on 16 times 2019 forecast earnings, with a 2.5% dividend yield. That’s the cheapest I’ve seen Bunzl for a while. For buy-and-hold investors, I feel this could be a good chance to add some shares.

The next Bunzl?

With a market-cap of £7.2bn, Bunzl is now quite large. I suspect future growth will be slower than in recent years.

To maximise your returns, you might prefer to invest in a smaller business with similar characteristics, but more room for growth. If so, one company I’d consider is Porvair (LSE: PRV).

This £267m firm makes specialist filtration products for the aerospace, energy and industrial markets. Many of the company’s products are consumable and have few substitutes, providing reliable streams of repeat income.

Publishing its accounts for the six months to 31 May today, they suggest the strong performance we’ve seen in recent years is continuing in 2019.

Revenue rose by 21% to £72m during the half year. Pre-tax profit was 41% higher, at £7.4m, while the interim dividend was lifted 6% to 1.7p per share. Porvair’s operating profit margin remained stable at just over 10% — a good figure, if not outstanding.

The right time to buy?

I’ve got mixed feelings about whether I’d buy Porvair shares at 582p, the price at the time of writing. Although I believe this is an excellent business with good long-term prospects, analysts’ forecasts suggest earnings are only expected to rise by 7.4% in 2019, and by 5.6% in 2020.

That’s not a problem in itself, but it does make me question whether the stock’s valuation at 23 times 2019 forecast earnings may be high enough, for now. As a value investor, I’d rather buy this stock during a market downturn, when I might be able to lock in a more attractive valuation.

However, if I was an existing shareholder, I would certainly sit tight after today’s strong results.

City analysts expect growth to slow in the current period. In the 12 months to September 2019, a 3% rise is being predicted. But the FTSE 250 firm is expected to crank up the pace again from 2020. A 10% advance is pencilled in for then.

UDG is a pretty great growth share to snap up, in my opinion. As a provider of a broad range of outsourced services, like distribution and packaging production, to pharmaceutical and healthcare companies, it has strong exposure to the kind of defensive sector that allows earnings to grow almost each and every year. And thanks to its strong balance sheet, it has the capabilities to build its global base via more M&A to give profits growth that extra boost.

Build a fortune

Right now UDG trades fractionally above the benchmark forward P/E ratio of 15 times that indicates decent value. That’s stunning value for a firm with such a robust growth outlook, in my opinion, but if you’re looking for even cheaper then Grafton Group Units (LSE: GFTU) is worth a serious look.

This FTSE 250 firm deals on a prospective earnings multiple of 12.1 times and, like the aforementioned medical star, also has a history of hot bottom-line growth over the past several years. It’s been able to prove itself as a reliable profits generator thanks to its exposure to foreign climes, the building materials supplier offsetting weakness in the UK with strong growth elsewhere.

Indeed, on these shores Grafton saw sales rise just 3.4% in the three months to December, but in The Netherlands and Belgium these increased 3.6% and 7.4% respectively. And in Ireland these jumped by a staggering 9.8% because of the ripping expansion in the country’s construction industry.

A breath of fresh air

It’s little wonder then that City brokers are predicting additional earnings expansion of 4% in 2018 and 6% next year. And I’m confident that its broad geographic base and strong market conditions therein can keep profits bounding higher.

Another great growth pick to load up on today is Porvair (LSE: PRV). The filtration technologies expert is going from strength to strength and in the last fiscal year (the 12 months ending November 2018), revenues hit record highs of £128.8m, up 11% year-on-year and a result that reflected the quality of its specialist products.

Another reason why the small-cap’s profits column has ripped relentlessly higher, and is expected to continue to do so with rises of 5% predicted for both fiscal 2019 and 2020, is the company’s appetite for acquisitions. It made two major purchases last year, taking total spend on capital projects and M&A over the past five years to £42m, and it has the financial strength to keep its chequebook glowing.

An admission: Porvair’s forward P/E ratio of 20.7 times isn’t exactly cheap on paper. I would argue, though, that the firm’s highly-successful, aggressive growth strategy makes it a steal even at current prices.

That appears to be the case with Santander (LSE: BNC). The global banking stock has recorded a 28% decline in its share price in the last year, which suggests that investors are pricing in the impact of potential risks facing the business.

With an impressive growth outlook, it could generate high returns. That’s not the case with all stocks, though, as evidenced by what appears to be an overpriced smaller company which released an update on Monday.

High valuation

The company in question is specialist filtration and environment technology business Porvair (LSE: PRV). It released results for the year to 30 November 2018, delivering record revenue of £128.8m, an 11% increase on the previous year. Profit before tax increased £0.3m to £12m, while adjusted basic earnings per share grew 11% to 22.9p.

The company also reports it has a healthy order book, while acquisitions such as Rohasys BV and Keystone Filter have been integrated and are performing well. Such acquisitions have expanded its capabilities in industrial and laboratory markets, and could positively impact on its financial outlook.

However, with Porvair expected to post a rise in earnings of 5% in the current year, its price-to-earnings (P/E) ratio of 22 suggests it’s significantly overpriced. That’s especially the case while a number of other shares trade on low valuations following the stock market pullback of recent months. As such, it seems to be a stock to avoid.

Margin of safety

With the world economy having an uncertain outlook, now could be a good time to consider the investment prospects of Santander. Certainly, after its poor share price performance over the last year, it may experience continued paper losses in the short run. Risks, such as a rising US interest rate, slowing China growth and the potential for a global trade war, could hurt its financial prospects to a significant degree. But its share price now seems to offer an equally significant margin of safety.

For example, Santander has a P/E ratio of around 7. This suggests that investors may have priced in challenges for the world economy that may not materialise over the medium term. Its dividend yield of 6.2% appears to be very affordable given its earnings forecasts, due to be covered 2.3 times by profit in the current year. And with its bottom line expected to rise by 9% this year, its strategy appears to be working well.

With the world economy forecast to grow by 3.5% in 2019, Santander’s shares could be a surprisingly sound recovery option. With a low valuation, income potential and a bright earnings outlook, the stock may be underrated by investors at the present time.

Despite this, the stock has a relatively low valuation. This could make it more appealing than the FTSE 100, as well as a number of other shares that seem to now lack margins of safety. One example of such a stock released an investor update on Tuesday.

High valuation

The company in question is specialist filtration and environmental technologies company Porvair (LSE: PRV). It released a trading update that showed it has made good progress in the first nine months of the year. It has achieved revenue growth of 8%, with underlying revenue being 11% up on the same period of the previous year. The company’s order book remains healthy, while the acquired Keystone Filter operations are being successfully integrated.

The problem facing investors, though, is that the Porvair share price appears to be overvalued. It trades on a price-to-earnings (P/E) ratio of around 28, which suggests that it lacks a margin of safety. And with its bottom line due to rise by 3% this year and 5% next year, it seems to lack a clear catalyst to push its stock price higher. As such, it appears to be a stock to avoid at the present time on valuation grounds, even though it is performing well from a business perspective.

Low valuation

In contrast, the Glencore share price seems to offer excellent value for money. It has a P/E ratio of just 9, which suggests that it has a wide margin of safety. This could be useful if the world economic outlook deteriorates over the next few years. With tariffs being put in place by the US, China and EU, the prospect of a full-scale trade war remains high. This could hurt the performance of the FTSE 100, and cheaper stocks could therefore be less affected. And while there are regulatory risks facing the company, the stock market appears to have priced them in.

With Glencore having a dividend yield of over 5% at the present time from a payout that is covered 2.3 times by profit, it seems to have income investing potential. Although its business model may still be subject to the ups-and-downs of the resources industry, it has been able to reduce debt in the last few years. Alongside asset sales, this has strengthened the company and could provide it with greater financial resilience during a downturn.

Since the stock is due to post positive earnings growth over the next two years, now could be a good time to buy it. At a time when a number of shares both inside and outside of the FTSE 100 are trading on high valuations, Glencore seems to offer an impressive investment outlook.

Today, I’m taking a look at two small-caps that have both smashed the market over the past few years and look set to continue this record.

Profits surge

Since mid-2014, shares in construction equipment group Somero Enterprises (LSE: SOM) have produced a return of 525% for investors, excluding dividends. This means the stock has beaten the FTSE 250 by a staggering 470% over the same period. 

Surging profit is the reason why the company has been able to produce such impressive gains for investors. Since 2012, net profit has jumped a staggering 1,740% from $1m to $18m, a rate of around 80% per annum according to my figures. 

Unfortunately, growth is expected to cool this year. Analysts have pencilled in earnings growth of 14% for the year ending 31 December. Still, in my opinion, the shares continue to offer value for investors. 

The stock trades at a forward P/E of 14.4 that’s excluding cash on the balance sheet of $19m (£14m). Cash generation is one of Somero’s best qualities. Despite $14m of dividend payments in 2017, its cash balance only declined $1m for the year, as inflows easily covered shareholder distributions. 

Somero’s cash balance is worth around 24p per share according to my figures, indicating that the stock is trading at a cash-adjusted P/E of 13.7. The shares currently yield 3.6%. 

As the company continues to churn out cash, I believe its growth is only just getting started. 

Reach for the stars 

Filtration products specialist Porvair (LSE: PRV) has doubled earnings per share in the past six years as it has consolidated its leading position in the global filtration market. 

While the company’s growth hasn’t been as robust as Somero’s, I still believe it is a growth stock to watch. 

Today, the group reported that it is set to report a profits rise for the six months ended 31 May 2018 “in line with management expectations,” although there’s no further guidance on the bottom line. City analysts have pencilled in earnings growth for the full-year of 3%, which, in my opinion, seems conservative.

Indeed, today the company reported that underlying revenue growth for the period to the end of May was 13%, that’s compared to the City’s full-year target of 6%. 

Personally, I believe that Porvair could be on track to beat the City’s predictions for the year if it continues on its current course. For this reason, I also believe the firm’s current valuation of 25 times forward earnings, does not accurately reflect its potential. 

Along with Porvair’s growth track record, the shares also support a dividend yield of 0.9%. The payout has grown at an average annual rate of 10% for the past five years and is backed up by £2m of net cash on the balance sheet. 

So overall, even though Porvair might look expensive, I firmly believe the company’s potential is understated.