Are these the best stocks money can buy?
In an ideal world, we'd all own stocks that offered an even mixture of growth, dividends and value. Such opportunities are few and far between, but they do occasionally appear.
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My screening has recently flagged up two companies that appear to offer this elusive mix of affordable growth. In this article I'll take a closer look at each company, and ask whether their enviable performances can be maintained.
A proven cash machine
IT services and data centre operator Computacenter (LSE: CCC) made an impressive recovery from the financial crisis. Its shares have risen by 679% since the end of 2008. To put this in context, the FTSE 250 has only risen by 166% over the same period.
However, the firm's growth and share price were hit earlier this year by softer UK trading and the impact of the referendum. Computacenter also trades in France and Germany and the group's shares have fallen by 13% this year as investors have fretted over the post-Brexit outlook for this company.
The good news is that today's third-quarter update didn't flag up any new problems. Revenue rose by 2% to £735m during the period and full-year guidance was left unchanged. Net cash of £96.7m is expected to reach "record levels" by the end of the year. Computacenter has already indicated that some of this cash is likely to be returned to shareholders.
The secret to Computacenter's strong cash generation is that the group's return on capital is very high. Investors who focus on quality generally look for a return on capital employed (ROCE) of more than 15%. Computacenter's ROCE has averaged 19% since 2010.
That's a rare achievement. It makes me think that with a forecast P/E of 14 and a yield of 3.1%, now could be a good time to invest in Computacenter.
Plain sailing
Cruise ship group Carnival (LSE: CCL) seems an unlikely choice for this article. You might expect a business like this to suffer from cyclical downturns and have too much debt. But there's no sign of either of these problems at the moment.
Indeed, the global cruise market appears to be booming. Carnival's profits are expected to rise by 43% to $2.5bn this year, with a further 13% gain predicted for 2017.
You may remember that Carnival was hit hard by the loss of the Costa Concordia in 2012. The group's operating margin hit a low of 8.7% the following year, but has recovered strongly and reached 16.4% in 2015, boosting cash generation.
Debt doesn't seem a major concern either. The current net debt of $8.9bn only represents 26% of the group's $33bn fixed asset value, which seems acceptable to me.
Carnival shares currently trade on a 2016 forecast P/E of 13.9, falling to a P/E of 12.3 for 2017. Dividend growth is expected to remain at double digit percentage levels, giving a 2017 forecast yield of 3.2%.
City brokers are also turning more positive on the outlook for Carnival. Broker forecasts were cut following the EU referendum, but have since started to rise once again. Carnival has 15 new ships scheduled to be delivered by 2020. I believe this well-run firm could deliver further gains for investors over the next few years.
Five more super stocks?
Computacenter and Carnival may be great companies, but even the most concentrated portfolios need to contain more than two stocks.
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Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
