2 FTSE 250 flyers I’d buy before it’s too late

Take a look at these two stocks before they start to get expensive, says Harvey Jones.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The following two FTSE 250 stocks have seen their share prices surge in recent months but their valuations remain undemanding, at least for now.

Red hot

It has been a good day for Vesuvius (LSE: VSVS), a global leader in molten metal flow engineering, whose share price is up almost 9% after this morning’s trading update. This caps a good year for the group, whose share price has nearly doubled from 331p to 590p over the last 12 months.

Vesuvius has benefitted from encouraging signs of improvement in the global steel market, a trend that has driven a strong first quarter in 2017, making up for a relatively weak final quarter last year. Management recognises that these are early days and warns that predicting market resilience is never easy, but assured markets that it was “cautiously optimistic” about its 2017 trading performance.

Ready to blow

Vesuvius has been helped by 5.7% year-on-year growth in global steel production, as reported by the World Steel Association. However, this starts from the relatively low baseline of Q1 2016, and full-year 2017 growth expectations will be materially lower than this figure. Management is also concerned about specific markets, with demand for light vehicles slowing in the US, and heavy truck and mining sales showing only slight signs of recovery.

The firm continues to seek out restructuring opportunities, with total targeted savings of £45m a year. It has also benefitted from sterling weakness, although that may now reverse. The outlook is bright, with forecast earnings per share (EPS) growth of 12% this year and 10% in 2018. This is available at an undemanding forecast valuation of 15.4 times earnings. However, revenues look set to rise only slowly, so much of this is down to cost-cutting. A 3% yield covered 1.8 times is solid but not spectacular. Markets evidently like what they heard today and Vesuvius looks set to keep bubbling along nicely, providing the global economy does.

Defensive play

Meggitt (LSE: MGGT) has been hitting the highs lately, its share price rising 20% in the past year alone, of which 12% came in the last three months. However it still looks affordable, trading at just 13.81 times earnings.

The group, which specialises in high performance components and sub-systems for the aerospace, defence and energy markets, was given extra lift-off after reporting revenue growth of 9% last month. It was boosted by weaker sterling, which beefed up the value of its overseas earnings. Civil aerospace, organic aftermarket revenues and original equipment revenues all grew 3% organically, although military revenues declined 5%, and energy revenues also declined.

Trump play

The future looks steady, with anticipated 2%-4% organic revenue growth for the year, in line with guidance issued in February. The outlook for its military division should also be brighter, assuming that President Trump gets at least some of his spending package through Congress.

EPS are forecast to rise a steady 7% this calendar year and 5% in 2018. These steady growth prospects are yours for an attractive forward valuation of just 12.4 times earnings, while the forecast yield of 3.3% is handily covered 2.3 times, suggesting room for progression. I’m hoping that Meggit will fly to new heights.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended Meggitt. 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »