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I think there are a lot of quality British stocks that perhaps go unnoticed due to a lack of brand power or name recognition.
Two options that I think investors should consider purchasing are Topps Tiles (LSE: TPT) and Michelmersh Brick Holdings (LSE:MBH). Here's why!
Mosaic Giant
Topps Tiles is one of the country's leading tile and flooring companies. He has a vast physical presence as well as a long career. However, it still trades as a small-cap stock.
From a bullish perspective, it's hard to ignore Topps' track record, longevity, and market-leading position. This could help the stock provide good value for shareholders over time. Additionally, the business has evolved with the times as purchasing has evolved. A good example of this is its online offering to adapt to changes in purchasing habits.
Looking ahead, Topps is in an excellent position to benefit from interest rate cuts and growing demand for housing. New and renovated homes need tile and flooring. Topps can use its advantageous market position to increase performance and profitability here.
Finally, a dividend yield of 8% seems attractive. However, it has been driven higher by falling share prices linked to economic volatility. Although payout coverage doesn't seem like an issue at present, it's worth remembering that dividends are never guaranteed.
Looking at the bear case, the rise of e-commerce has welcomed unwanted competitors to Topps' doorstep. You face higher overhead costs, such as rental costs, and this could affect pricing power. Losing market share could harm performance and profitability. Another problem is economic volatility – like now – which could mean consumers have less money to spend on home renovation projects.
Despite some potential problems, Topps is a solid company with a good track record and attractive fundamentals.
Bricks and mortar
Michelmersh is a manufacturer of bricks, tiles and construction products.
A big advantage for Michelmersh is that it manufactures its own products. This is from their own site in Telford. This can help control costs as well as quality levels.
Going forward, demand for construction bricks and aggregates could skyrocket in the coming years. This is related to the increase in demand for infrastructure in line with population growth.
Additionally, demand for housing is outstripping supply. This deficiency needs to be addressed. All these aspects could translate into greater performance and profitability for Michelmersh shareholders.
From a fundamental standpoint, the stock offers a solid 4.5% dividend yield. In addition to this, the stock appears to be good value for money, trading at a price-to-earnings ratio of 11.
Looking at the risks, inflation could hamper Michelmersh as rising raw material costs could increase operating costs. This could mean the company must increase prices and risk losing customers, which could put pressure on its margins.
Another concern is economic volatility. It could hamper the housing market (a bit like now) and delay or even cancel infrastructure projects.
Michelmersh may not have a powerful brand or extensive reach. However, it has good fundamentals and also bright prospects for the future.