2 top value stocks I'd buy in 2018

The Motley Fool
Next NXT shop window display
Next NXT shop window display

Unearthing the best stocks at the lowest prices can be challenging even during the most benign of market conditions. However, after a Bull Run which has lasted for several years, investors may be finding it more difficult to find stocks with bright growth stories at low prices. After all, stock markets have surged higher, with the FTSE 100 more than doubling in less than nine years.

Despite this, there are still a number of opportunities to find good value stocks with wide margins of safety. Here are two prime examples which could be worth buying today.

Improving performance

Reporting on Wednesday was cellular materials technology company Zotefoams(LSE: ZTF). The company's trading update for the 2017 financial year was relatively positive and showed that it was able to continue the strong trend seen in the first three quarters of the year. Full-year revenues are expected to be ahead of current market expectations, while adjusted profit before tax and exceptional items is due to be at the top end of forecasts.

There was strong performance across all of its business units. There has also been further development of the portfolio of future opportunities, with a strong order book allowing the business to enter 2018 with confidence. Encouragingly, the company's US plant construction has been completed. Commissioning has now begun, with a handover to manufacturing expected to occur in February.

Looking ahead, Zotefoams is expected to report a rise in its bottom line of 16% in the current year. This puts it on a price-to-earnings growth (PEG) ratio of just 1.6, which suggests that it offers excellent value for money at the present time. With a solid track record of earnings growth and a positive outlook, the stock could deliver high levels of share price growth in the long run.

Uncertain outlook

Of course, even though the global economy is performing relatively well, some sectors continue to have uncertain futures. One example is the UK retail sector, where companies such as Next(LSE: NXT) continue to experience difficult trading conditions. This is not particularly surprising, since higher levels of inflation have caused consumers to have less disposable income in real terms. This seems to be changing their shopping habits and may mean reduced sales across the sector.

However, Next seems to be performing well when compared to its sector peers. Its recent update showed that it has been able to grow online sales, while the decline in store sales was lower than expected. As such, the stock could deliver better growth than many investors anticipate.

With a price-to-earnings (P/E) ratio of just 12, Next seems to offer good value for money right now. Certainly, it may lack earnings growth over the next couple of years, and its share price could remain volatile. But for long-term investors, now could prove to be an opportunity to buy it ahead of a period of significant capital growth.

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Peter Stephens has no position in any 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.