2 bargain stocks I'd buy right now

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McCarthy & Stone

When it comes to British housebuilders McCarthy & Stone(LSE: MCS) is perhaps not the first name that springs to mind. But the FTSE 250-listed developer happens to be the UK's leading retirement housebuilder with around 70% of the owner-occupier market. With demand for specialised retirement housing growing with each passing year, I believe the group is perfectly positioned to cater for this increasing important and rapidly expanding market.

The UK is getting older

It's estimated that the number of people aged 85 and over will more than double to 3.2m by 2035, with those aged 65 and over increasing by more than 50% to 17.2m over the same period. But what I find most interesting of all is that although research suggests that one in four over 60s are interested in retirement living, only around 141,000 units of specialised retirement housing have actually been built.

The Bournemouth-based developer has established product ranges to cater for both the retirement living and assisted living segments of the market, providing one and two bedroom apartments across the country with varying levels of care and support for older homeowners. Last March McCarthy & Stone became the only UK housebuilder to win the full five-star rating in the Home Builders Federation's customer satisfaction awards for a record 11 consecutive years.

Brexit sell-off

The company issued its latest trading update on the day of its annual general meeting on 25 January. It included the news that year-to-date reservations were running ahead of the prior year, and have already contributed £206m of revenue to the forward order book. This represents a year-on-year increase of 5% due to an improvement in average selling prices achieved.

McCarthy & Stone's shares have yet to recover from last year's Brexit sell-off, currently trading 37% below their January 2016 peak of 287p. And with double-digit growth forecast for the next two years, I feel the shares are too cheap to miss at just 11.8 times earnings for the current year to August 2017.

The AA reverses its decline

Another mid-cap stock currently trading on a bargain valuation is the AA(LSE: AA). In a pre-close announcement for the year ended 31 January, the UK's leading provider of roadside assistance reported a rise in membership numbers as its transformation programme continues to make good progress.

The total number of paid personal memberships rose by 0.4% during the second half of the financial year and stood at 3.335m at 31 January, thereby reversing a long-standing decline. This was driven by 19% growth in new business volumes in the second half compared with the corresponding period in the prior year and an improved annual retention rate of 82%.

The Basingstoke-based roadside assistance firm trades on an undemanding valuation of just 10 times earnings for the current financial year to 31 January 2018, supported by a 3.7% dividend yield, which rises to 4.5% by FY 2019.

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Bilaal Mohamed 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.


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