One thing the Motley Fool stresses is to hold on to your winners, and after a stellar 2017 for both share registrar Equiniti (LSE: EQN) and discounter B&M (LSE: BME), I'm picking these two stocks to once again deliver market-beating returns in 2018.
Overseas expansion at last
For Equiniti, whose shares have returned over 45% in the past year, my bullishness is driven by its market-leading position in the UK, where it serves some 70% of FTSE 100 firms, and its impressive growth prospects in the US.
At home in the UK, Equiniti provides firms with services it aptly describes as non-core but mission-critical. This means providing corporate customers with services as varied as share registration, pension administration and regulatory compliance software.
The company already has market-leading positions for several of its core offerings. But it is still growing sales at a steady clip through bringing on board new clients, including 75% of all new IPOs in 2017, adding on new services and cross-selling existing services to other customers.
On top of this organic growth, Equiniti now has access to the world's largest market for its services, the US, through the £176m purchase of Wells Fargo Shareholder Services that is expected to close in Q1 2018. This business is already profitable but as a small, non-core part of Wells Fargos' larger banking group it was relatively under-invested.
Equiniti plans to change that and is in the process of migrating over the variety of additional services and software that it offers in the UK to the US. This should help the firm gain market share as clients prefer a one stop shop for many of their back office needs.
With growth at home and in the US on tap, a stable balance sheet and impressive defensive characteristics, I reckon Equiniti's impressive 2017 performance can be more than repeated in 2018.
Taking market share from the big guys
Discount retailer B&M's stock price rose by over a third in 2017 on the back of store expansion and strong like-for-like sales growth from its existing estate. With consumers still attracted to discounters' pricing and product offerings and plenty of room for continued expansion, I reckon it could end up performing just as well in 2018.
In the half year to September, it ginned up a stunning 7.5% increase in same-store sales for its eponymous UK brand, while the continued rollout of new stores at home and in Germany and the acquisition of Heron Foods led to group sales rising 21.7% to £1.3bn.
Gross margins did slide a bit from 34.7% to 33.9% due to rising input prices and a shift towards more grocery products in stores, but EBITDA margins remained very high for the sector at 8.6%. This is higher than competitors' margins and gives B&M significant scope to absorb rising costs without passing them on to consumers. This should drive further market share gains.
With a strong management team and consumers attracted to its offerings in bull and bear markets alike, I fancy B&M's prospects for continued market outperformance in 2018 are looking quite good.
But if B&M is still a bit too pricey for you, I recommend checking out the Motley Fool's free report on one Top Growth Share trading at a far more reasonable valuation. This founder-led business has grown sales every year since 1997 and the Fool's top analysts see little reason for it to slow its pace in 2018.
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Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK owns shares of Equiniti. 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.