Structural steel specialist Severfield (LSE: SFR) delivered an interesting outlook statement in its full-year results report this month.
An encouraging pipeline of opportunities
The company described the performance of its business through the pandemic as “resilient”. And there’s a chunky order book for future work in both the UK and Indian operations. On top of that, the directors pointed to an “encouraging” pipeline of opportunities in the UK, Europe, and India.
And intuitively, the steel business ‘feels’ like a good place to be trading right now. With several governments making noises about investing in infrastructure, it’s hard for me to imagine Severfield’s workload drying up.
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However, the sector is highly cyclical. And if I didn’t believe that the general economy is on an upward wave I’d avoid investing in the stock. It’s easy to lose money holding cyclical shares if I get my timing wrong.
But City analysts expect earnings to increase by around 22% in the current year to March 2022 and around 12% the year after that. Of course, forecasts can change based on future developments. Meanwhile, with the share price near 80p, the forward-looking earnings multiple for the current trading year is just below 11. And the anticipated dividend yield is a little over 3.8%.
I think the valuation is undemanding. And it works with the strong outlook and robust balance sheet to make the stock attractive to me right now.
Operational momentum
Electronic components manufacturer and supplier Solid State (LSE: SOLI) has several attractions for me. For example, the balance sheet is strong. And there’s a decent multi-year record of trading and financial figures.
Earnings held up through the pandemic. And City analysts expect a mid-single-digit percentage increase in the current trading year to March 2022.
In April, the company said organic opportunities in the company’s target markets provide “an encouraging foundation” for the future growth of the business. Then, in May, as if to prove the point, the company announced a $4.56m three-year contract renewal with a global defence technology customer.
There seems to be operational momentum in the business and I’d be keen to pick up a few of the shares. With the share price near 891p, the forward-looking earnings multiple is just over 16 for the current trading year to March 2022. And the anticipated dividend yield is around 1.8%.
The valuation looks like it’s up with events. And I could see the share price fall if earnings fail to come in as expected. Nevertheless, I’d embrace the risks and aim to hold the stock for at least five years.
These two UK shares are typical of the kinds of investment opportunity I’m looking for. My belief is a portfolio of such positions diversified between sectors will serve me well in the years ahead. Of course, nothing is certain and all shares carry risk. But I’d aim to compound my returns over the long haul.
