The market for UK stocks remains choppy. And itâs been hard for many investors to make much overall progress lately with their portfolios.
However, suppressed market conditions can be the friend of the investor who’s focused on long-term returns. And thatâs because an unenthusiastic market can lead to depressed valuations.
In one example, super-investor Warren Buffett has earned a reputation for shopping for stocks in markets like these. And thatâs because he aims to buy quality businesses with decent growth prospects when their valuations are modest.
Investing in R&D
I may not have his resources, but right now, I like the look of molten metal flow engineering and technology company Vesuvius (LSE: VSVS).
The business develops and makes high-technology products and solutions mainly for the steel and foundry casting industries. And as part of that, it has a sizeable Research and Development (R&D) operation.
With the share price near 413p, the market capitalisation sits around £1.12bn. And the valuation looks undemanding.
City analysts expect a modest rebound in earning of around 16% in 2024. But thatâs after a drop of nearly 48% this year. Indeed, one of the risks with this enterprise is its apparent cyclicality. Indeed, the multi-year record of earnings is volatile.
Nevertheless, set against analystsâ expectations, the forward-looking earnings multiple for next year is just above eight. And the anticipated dividend yield is a little under 6%.
I see that shareholder payment as attractive. And itâs been notching up each year since 2020. However, the dividend will likely be cut or trimmed in any future general economic downturn.
Resilient trading
In May, the company reported âresilientâ trading in the first four months of 2023. And the directors said the improvement was down to better volume and pricing performance.
Thereâs been some recovery in the companyâs end markets after a poor fourth quarter in 2022. But the directors warned that the pace of recovery is âslow and uncertainâ. And those observations underline how sensitive Vesuvius is to the general health of the economy and its industrial markets.
Nevertheless, looking ahead, the company said its growth capital investment programme is proceeding as planned. And that will likely support the performance of the business when the market recovery âacceleratesâ.
Iâm optimistic about the prospects for the UK and world economies. And because of that I see the Vesuvius business as having stored-up potential to grow in the coming years.
Chief executive Patrick Andre said that despite short-term uncertainty, the directors are âhighly confidentâ in the companyâs growth potential. And the âindustry leadingâ investment in R&D and the growth capital investment programme will continue âat paceâ.
My view is that R&D can be a big driver of returns for shareholders in any business over time. However, positive outcomes aren’t guaranteed with any stock.
Nevertheless, Vesuvius is currently at the top of my list for further investigation and research. And if I had £5,000 to invest, Iâd consider buying it now.
The post If I had £5,000 to invest, here’s the top UK stock Iâd consider buying now appeared first on The Motley Fool UK.
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Kevin Godbold has no position in any of the 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.
