2 'under the radar' stocks I'd consider in October

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Ibstock

James Halstead(LSE: JHD), the commercial flooring manufacturer and distributor, today reported another year of record profits, despite the shadow of uncertainty cast by last year's Brexit vote and tougher than normal trading conditions.

Record turnover and profits

The AIM-listed group, based in Radcliffe near Manchester, announced record turnover of £240.8m for the 12 months ended 30 June, a 6.5% improvement on the £226.1m it reported in 2016. Pre-tax profits also hit record levels at £46.6m, 2.5% higher than the same period a year earlier.

The general weakness of sterling gave a boost to the group's export activities, helping to increase competitiveness and margins, but this was tempered by a 5.2% fall in UK sales, and turmoil in the supply chain of raw materials. But I'm not overly concerned, as the drop in UK sales was entirely accounted for by de-stocking at two of its larger distributor chains, where conditions are now normalising, and the supply chain issues are also largely resolved.

James Halstead's shares have suffered a sharp decline since hitting all-time highs in May, and are now trading close to 12-month lows. I see this weakness as an excellent opportunity for growth-focused investors to pick up the shares on the dip. The shares are by no means cheap however, trading at 24 times FY2018 earnings, but are well worth the premium pricetag in my view given the robust performance and promise of steady long-term growth.

Cheap construction play

Meanwhile, Ibstock(LSE: IBST) is another very promising growth stock that I believe may have gone unnoticed by the majority of retail investors. The FTSE 250 brickmaker has seen its shares perform exceptionally well over the past 15 months, doubling in value since July 2016. But I believe the recent pull-back in the share price could signal a buying opportunity for savvy investors on the lookout for a cheap construction play.

The Leicestershire-based group has a diversified range of clay and concrete products, with operations in both the UK and US. Its principal products are clay bricks, brick components, concrete roof tiles, concrete substitutes for stone masonry, concrete fencing and pre-stressed concrete products.

Leading brick manufacturer

The UK operation accounts for 81% of group revenues, with the Ibstock Brick business being the country's leading manufacturer of clay bricks by volume. With 19 manufacturing plants, the business also boasts the largest brick production capacity in the UK, operating a network of 23 active quarries, generally located close to its manufacturing plants.

I believe the longer-term fundamentals for Ibstock and the UK housebuilding sector in general remain in place, with government support, good mortgage availability, and a continuing undersupply of new homes. Housing prices may fluctuate but the fundamental demand for homes among consumers from families to singles remains strong and this is good news for the bricks sector.

The shares trade on a fairly modest price-to-earnings multiple of 12, and offer a solid yield of 3.6%, with payouts covered more than twice by forecast earnings.

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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. 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.


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