These 2 bargain stocks could still make you brilliantly rich

Qinetiq logo on a jet fighter
Qinetiq logo on a jet fighter

QinetiQ Group(LSE: QQ) is a falling knife after publishing its interim results for the six months to 30 September, down 7.27% at time of writing. Today's slump caps a dismal spell for the group, its share price plunging more than a third from a peak of 322p in late May to 204p today. Should you grab it?

QinetiQ Energy

The £1.16bn science and engineering company, which is headquartered in Farnborough and operates mainly in defence, security and aerospace, looked set to benefit from resurgent defence spending as May's final results showed pre-tax profit up 16% to £123.3m. But then it spooked markets in July by warning of a slowdown in orders.

Markets are spooked again today even though it has reported 8% revenue growth to £392.5m, or 3% after adjusting for foreign exchange movements, with profit after tax up almost 30% to £64.1m. The interim dividend was hiked 5% to 2.1p but markets are presumably fretting over some of the negative figures, which include a year-on-year dip in underlying total orders from £376.8m to £276.3m.

Challenging times

Net cash flow from operations also fell from a statutory £60.6m to £35.7m, with the group's net cash position falling from £271.2m to £194.7m, although management explained that this "reflects increased strategic capital expenditure and working capital movements".

QinetiQ operates principally in UK, US and Australia and today's report warns of Ministry of Defence cost savings and the challenging political environment in the US, which could undermine plans to increase defence spending. The backdrop is more positive in Australia, Canada, Saudi Arabia and the UAE. Looking forward, City analysts are forecasting a 7% drop in earnings per share (EPS) in 2018 followed by a flat 2019. With the stock trading at 13.5 times earnings, some of this is in the price. The forecast yield is 2.8%, covered 2.7 times. Today's knee-jerk response looks overdone. However, you may prefer this high-flying defence contractor instead.

Wealth manager

Asset manager Investec(LSE: INVP) also issued results after a rough patch that has seen its share price drop 17% in the last six months but the market response has been more sanguine, its share price clicking up 2p to 506p. The group's ongoing operating profit increased 10.5% to £347.5m although just 0.9% on a currency-neutral basis. Recurring income as a percentage of total operating income climbed from 72.4% in 2016 to 76.4%.

The group's asset management and wealth and investment businesses were boosted, supported by favourable equity markets and combined net inflows of £3.6bn, while its specialist banking businesses enjoyed "good growth in loan portfolios and client activity" despite macro uncertainty. Statutory adjusted earnings per share rose 17.2% to 26.6p, or 5.7% on a currency-neutral basis.

Crashing buy

Management said that Investec's UK business put in a strong performance, although earnings in South Africa were hit by lower brokerage volumes. The group is now available at a bargain 9.7 times earnings on a forecast yield of 5%, covered twice. However, red hot wealth manager Rathbone Brothers could prove more tempting.

Investec has delivered steady EPS growth for the last five years, and that is forecast to continue at 7% in 2017 and 8% in 2018. By then, the yield is forecast to hit 5.6%. Investec looks well set, although I should add that asset managers can get smashed if stock markets fall. Maybe one to buy in the crash that everybody keeps threatening us with?

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.