Why these battered FTSE 250 stocks may be ready to rebound

Roland Head looks at the pros and cons of investing in these troubled FTSE 250 (INDEXFTSE: MCX) firms.

| 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.

Today I’m going to look at two stocks which have repeatedly disappointed investors over the last few years. I’ll explain why I think the tide may finally be turning and whether the outlook supports a buy rating for each stock.

Powering up

Temporary power group Aggreko (LSE: AGK) has lost 64% of its market value since 2012, despite a number of false dawns. But I believe a sustainable recovery may now be on the cards.

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

Aggreko’s revenue rose by 2% during the first quarter, excluding the impact of currency and pass-through fuel costs. Excluding losses from the group’s Argentinian business, revenue rose by 7% on a constant currency basis excluding fuel.

Ongoing losses in Argentina are the result of Aggreko renewing legacy contracts dating from 2008 onto new, lower rates that reflect current market conditions. The upshot of this for Aggreko seems to be that some of its equipment in Argentina is coming off hire, and some contracts are continuing with lower profit margins.

The good news is that the firm says the Argentinian contracts are “the last significant legacy contracts” that should be affected by this problem. These exceptional losses should clear the way for Aggreko to return to earnings growth in 2018.

However, market conditions suggest growth is unlikely to be as rapid as it once was. Today’s statement revealed that while conditions are improving in the US oil and gas market, “Asia and Latin America continue to be more challenging”. Aggreko is downsizing its business in these regions in order to manage costs.

Today’s quarterly statement confirmed that full-year results should be in line with expectations. That means earnings per share are expected to fall slightly to 60.7p per share, putting the stock on a forecast P/E of 14.9. The dividend is expected to remain broadly unchanged at 27.4p, giving a forecast yield of 3.0%.

It’s too soon to be sure, but I believe Aggreko’s downturn may now be close to its low point. If the firm can deliver steady growth from here and maintain good cash generation, I believe the shares could be attractive at around 900p.

No more profit warnings

Defence group Cobham (LSE: COB) became notorious last year for the number of profit warnings it issued. But the group said on Thursday that first-quarter trading had been in line with expectations and that full-year guidance remained unchanged.

That should be good news for shareholders, who recently took part in a £512.4m rights issue to help the firm reduce its debt burden.

It has to be said that Cobham does not look like an attractive buy based on its recent performance. But new chief executive David Lockwood is confident he can drive through significant improvements to operational and financial processes. He believes he should be able to increase the group’s underlying operating margin by 2-3%. This could certainly lift profits to more attractive levels.

Cobham has the potential to be a successful turnaround play. But I think it probably makes sense to wait for the firm’s interim results in August before deciding whether to invest. I certainly won’t be buying shares before 5 May, when the share price is likely to lurch lower as the new rights issue shares begin trading.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Roland Head has no position in any 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.

More on Investing Articles

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

This cheap share fell 30% last week. I’d buy now

This huge US corporation saw its shares crash by 30% last week. But I'd buy this surprisingly cheap share now…

Read more »

Various denominations of notes in a pile
Investing Articles

These 7 shares produce passive income of 7% to 11% a year!

Passive income is extra money I make without working. By buying these seven shares, I could earn 8.9% a year…

Read more »

A person holding onto a fan of twenty pound notes
Investing Articles

6.6%+ dividend yields! 2 FTSE 100 dividend stocks to buy

Finding the best dividend stocks to buy requires extra care today as soaring inflation takes a bite out of shareholder…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

At 85p, are Rolls-Royce shares a slam-dunk buy?

The Rolls-Royce share price is in penny stock territory. Roland Head explains why he thinks this FTSE 100 stalwart looks…

Read more »

Business development to success and FTSE 100 250 350 growth concept.
Investing Articles

‘Big Short’ investor Michael Burry is buying this quality growth stock! Should I?

In the first quarter, Michael Burry bought more of this growth stock. Is this a hint that I should also…

Read more »

A beach at sunset where there is an inscription on the sand "Breathe Deeeply".
Investing Articles

Stock market crash: here’s why falling prices is good news

Over in the US, a stock market crash is battering high-priced stocks. But I see falling shares as an opportunity…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

These 5 FTSE 100 shares crashed in 2022. I’d buy 1 today

Although the FTSE 100 index is flat in 2022, some Footsie shares have crashed hard this year. But I see…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

How investors can boost their passive income when the FTSE is falling

Stock markets are plagued with fears right now. Here's why I firmly believe those fears improve our passive income prospects.

Read more »