These ‘hidden’ value stocks could crush the FTSE 250

Looking to beat the FTSE 250 Index (INDEXFTSE:MCX)? Then consider these under-the-radar value stocks.

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Following a recent strong performance from the FTSE 250 Index, it has become harder to find value opportunities within the small- and mid-cap segments of the market. However, there are still some stocks that continue to trade at undemanding valuations and I reckon it is still possible to find shares which are capable of outperforming the wider index.

With that in mind, here are two under-the-radar value stocks that might help you do just that.

On a roll

Cineworld (LSE: CINE), which recently completed a transformative deal to buy US cinema chain Regal Entertainment Group, is one stock that deserves more attention than it currently gets. After a strong run in its share price since the end of the last recession, it has since pulled back to trade at 18% below its 52-week high of 327p.

Against the disappointing share price performance, Cineworld’s recent trading performance shows that it is on a roll. Revenues for the cinema chain increased by 6.7%, in constant currency terms, for the period between the start of 2018 and 13 May, as ticket sales grew by 6.1% on the previous year.

And amid weak consumer confidence in the UK, Cineworld’s expansion into the US market has helped to lessen the impact of a weaker performance in the UK market, as a 10.2% increase in revenues from the US had more than offset a 2.1% decline in the UK and Ireland.

Bullish catalysts

Looking ahead, the company looks set to benefit from a series of bullish catalysts. Cost synergies from its Regal acquisition are expected to yield $100m in annual pre-tax savings, while there are also growth opportunities through venue refurbishments and better marketing to boost revenues.

And for the near-term, there’s a promising set of blockbusters due for release in the second half of the year, including Deadpool 2, Solo: A Star Wars Story and Jurassic World: Fallen Kingdom, which could give an extra uplift for its upcoming full-year results.

Despite all this, valuations are undemanding with Cineworld shares trading at a forward P/E of 14.8.

Low multiples

Another stock trading at low multiples on forward-looking earnings is Premier Foods (LSE: PFD). The company, which owns well-known food brands including Bisto, Batchelors, Mr Kipling and Loyd Grossman sauces, trades at just 5.4 times its adjusted earnings for the coming year.

This is in spite of improving sales growth and a shrinking debt burden at the company. On Tuesday, Premier Foods said its pre-tax profits for the 52-weeks to 31 March increased by 74%, as revenue growth hit its fastest pace for more than five years.

The company’s upbeat trading performance showed that it has made a strong start with new product launches and reflected healthy grocery retailing conditions, in contrast to weak consumer spending elsewhere.

Mixed picture

Looking ahead, the picture is mixed. Although the company’s financial performance has improved considerably in recent years, there’s a great deal of uncertainty going forward. Premier Foods is highly exposed to the UK retail market at a time when consumer spending has started to decline. What’s more, with supermarkets under pressure to cut costs, I’m concerned that a potential squeeze on margins could hurt its earnings recovery.

On the other hand, with valuations where they are, many of these risks appear to have been already baked into its share price.

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.

Jack Tang 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.

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