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I believe there are a number of quality UK stocks that may have gone under the radar due to a lack of brand strength or name recognition.
There are two options that I think investors should consider buying Tops Tiles (LSE: TPT) and Michelmersh Brick Holdings share price (LSE: MBH). Here is the reason!
The tile giant
Topps Tiles is one of the leading tile companies and firms in the country. It has a large physical presence and a long track record. However, it still trades as a small stock.
With a bullish outlook, it’s hard to ignore Topps’ track record, longevity, and leading market position. This can help the stock provide good value to shareholders over time. Also, business has moved with the times as shopping has changed. A good example of this is its online offering to cater to changing shopping habits.
Looking to the future, Topps is well positioned to benefit from lower interest rates and increased demand for housing. New and renovated homes require tiling and flooring. Tops can use its advantageous market position to increase performance and returns here.
Finally, the dividend yield of 8% looks attractive. However, there has been an increase in stock price declines related to economic volatility. Although the inclusion of payments does not appear to be a problem at the moment, it is worth remembering that the benefits are not guaranteed.
Reviewing the bear case, the e-commerce boom welcomed unwanted competitors to Tops’ door. It has to move higher, like rental costs, and this can affect pricing power. Losing market share can hurt performance and returns. Another issue is that the economic downturn – right now – can mean that buyers have less money to spend on home improvement projects.
Despite the potential problems, Topps is a solid business with a solid track record and attractive fundamentals.
Bricks and mortar
Michelmersh is a manufacturer of bricks, roofing tiles, and a manufacturer of building products.
The big point of Michelmersh is the fact that it produces its own products. This is from its site in Telford. This can help control costs, as well as quality levels.
Going forward, the demand for bricks and construction figures may increase in the coming years. This is linked to the growing demand for infrastructure in line with the growing population.
In addition, the demand for housing exceeds the supply. This deficiency must be corrected. All of these factors can translate into improved performance and returns for Michelmersh shareholders.
From a fundamental perspective, the shares offer a dividend yield of 4.5%. In addition to this, the shares appear to have decent value for money as they trade at an earnings multiple of 11.
Looking at the risks, inflation may affect Michelmersh as an increase in the cost of raw materials could increase operating costs. This could mean the company has to raise prices and risk losing customers, which could put its margins under pressure.
Another concern is economic instability. It could disrupt the property market – a little at the moment – and infrastructure projects could be delayed, or even cancelled.
Michelmersh may not have a strong brand name or wide reach. However, it has good foundations, and bright prospects for the future as well.
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