2 top value stocks I'd buy for my ISA

Bloomsbury Publishing(LSE: BMY) owes a substantial part of its success to the Harry Potter franchise, which even today (20 years on from its debut) is still producing returns for the group.

Indeed, thanks to the launch of special editions of the first Harry Potter book during the first half of its current fiscal year, the company saw a 15% increase in total revenues and a 74% increase in adjusted profit before tax to £2.5m. Print revenues, which are still by far the largest division accounting for 80% of overall sales, grew by 16% during the period, contrary to broader industry trends.

Continued growth

But Harry Potter isn't the only string to Bloomsbury's bow. The company also produces content for the academic and professional markets as well as non-fiction titles and other children's franchises. A great example is that of Sarah J. Maas, a New York Times Bestselling Author whose title revenues grew 47% for the six months ended 31 August. Put simply, Bloomsbury is one of the publishing world's best businesses and right now, I believe the shares look deeply undervalued.

Even though the company's growth is sluggish, with analysts expecting earnings per share to expand by around 10% over next two years, the stock's valuation of only 12.7 times forward earnings leaves plenty of room for upside surprises if sales turn out to be better than expected.

What's more, the shares also support a dividend yield of 4.2% with the payout covered 1.8 times by earnings per share and backed up by £16m of cash on the balance sheet. In my view, this market-beating dividend yield and attractive earnings multiple makes Bloomsbury a great ISA pick.

Impressive recovery

Another value stock that's recently attracted my attention is steel producer Severfield-Rowen (LSE: SFR). This company hit the rocks in 2013 and has been recovering ever since, but it now looks as if the group has finally regained its composure. The dividend was reinstated in 2016, and the firm has built a healthy cash balance of £31.4m over the past few years, almost double the 2017 net profit of £15m.

Severfield has recently been awarded several landmark contracts which should guarantee income for some time to come. One of these deals was a contract to manufacture 15,900 tonnes of structural steelwork for new Google Headquarters in King's Cross, London adding to the existing UK order book of £245m reported in the interim results for the six month period ended 30 September.

City analysts are expecting the entire order book to produce a net profit of £17.7m for the company in 2018 and £18.6m for 2019 giving earnings per share of 6.7p. Based on these figures, the shares are trading at a forward earnings multiple of 11.2. There's also a dividend yield of 3.7% on offer.

In my opinion, Severfield's low valuation does not give much room for positive earnings surprises. The company has undergone a tremendous turnaround since 2013 and now looks better placed to grow than ever, I believe, so it's worth buying at today's low price to benefit from this growth ahead of a possible re-rating. With a 3.7% dividend yield, investors are being paid to wait as well.

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Rupert Hargreaves owns no share 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.