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This article looks at two terrific growth and income shares whose share prices could detonate in the days ahead.
Bellway
There’s no doubt that earnings growth for homebuilders like Bellway are set to slow considerably as the excessive house growth of recent decades grinds to a halt.
But in my opinion the massive sell-off that has engulfed these stocks — FTSE 250 stock Bellway has itself slumped 18% since the turn of 2018 — leaves many of them dealing at scurrilously-low prices.
Sure, the tough economic environment, exacerbated by the likelihood of more interest rate rises by the Bank of England, may hamper homebuyer appetite in the months (and possibly years) ahead. But demand is likely to continue outpacing supply for a variety of reasons, a scenario that should keep profits streaming higher at most of the listed builders.
My view is shared by the City who are expecting Bellway’s bottom line alone to have swelled 13% in the 12 months to July 2018, and another 5% rise is forecast for the current fiscal period. This leaves the company dealing on a forward P/E ratio of just 6.7 times, and comes despite trading conditions remaining really quite favourable.
Bellway itself commented in June that ‘the underlying requirement for new homes remains robust and is supported by favourable, stable market conditions and the continued availability of Help to Buy.’ It said that it had achieved 233 reservations per week during the period spanning February 1st to June 3rd, up from 221 in the same 2017 period.
What’s more, it advised that its forward sales had remained robust, the value of its order book rising 7.8% year-on-year at £1.7bn. And I reckon confirmation that the trading backdrop remains strong when fresh trading numbers are published tomorrow (Wednesday, August 8th) could help its share price to shoot higher again.
The number crunchers are clearly expecting things to remain rosy at Bellway, with further earnings expansion predicted to keep pushing dividends skywards as well. A predicted 139.7p per share dividend for the year just passed is predicted to rise to 145.8p in the current fiscal period. And this means the builder carries a gigantic 5% yield.
Macfarlane Group
Now yields at Macfarlane Group may not be as impressive, but readouts of 2.3% and 2.4% for 2018 and 2019 respectively — created by anticipated dividends of 2.3p and 2.4p per share for these respective years — are not to be scoffed at.
Payouts at the Scottish packaging powerhouse have marched steadily higher for many years now, enabling it to continue lifting the dividend at a steady pace. And according to latest trading details this story has further to run.
In mid-May it advised that ‘group profit for the year to date is well ahead of that achieved in 2017’ and that sales had boomed 11% in the period. The fast-growing e-commerce segment provides Macfarlane Group with the environment to keep on printing roaring revenues expansion, and I fully expect another cheery set of numbers when interim results are unveiled on Thursday, August 23rd.
City analysts are forecasting earnings growth of 32% in 2018 and 6% next year, meaning that Macfarlane Group changes hands on a forward P/E ratio of 14.4 times. This is far too cheap in my opinion given its exceptional top line momentum, and I reckon this low rating could provide the base for a fresh share price spurt when those new trading details are released.