3 cheap FTSE 250 dividend-growth stocks I’d buy after last week’s slump

Roland Head takes a look at three 20%+ fallers from the FTSE 250 (INDEXFTSE:MCX).

| 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.

Will the market sell-off continue in the week ahead, or is the worst over for now? There’s no way to be sure. In situations like this, I think the best thing for us to do is to focus on finding good, cheap stocks that could help us build a market-beating portfolio.

On Friday, I considered three potential picks from the FTSE 100. Today I want to continue my search in the mid-cap FTSE 250 index.

Banish Brexit with overseas growth

Recruitment group Hays (LSE: HAS) is the biggest UK-listed firm in this sector, with a market cap of £2.3bn. It generates roughly one quarter of its fees in the UK, but also operates abroad in markets including Australia and Germany.

Hays’ share price has fallen by almost 25% since the start of October. I suspect this sell-off may have gone too far. A trading update on 11 October showed that UK and Ireland fees rose by 3% during the three months to 30 September, despite Brexit fears slowing hiring.

Net fees for the group rose by 9% on a like-for-like basis during the quarter, compared to 10% last year. That seems fairly reassuring to me.

Brokers also seem confident. Earnings are expected to rise by about 10% in 2019. I reckon the stock’s 2018/19 forecast P/E of 12.4 and 4.2% dividend yield suggest a buying opportunity.

A half-price retail buy?

Shares in fashion retailer Superdry (LSE: SDRY) have fallen by almost 50% so far this year. That’s a surprisingly big drop, given that the company is continuing to deliver profitable growth.

What’s gone wrong? The departure of co-founder Julian Dunkerton spooked some investors. More seriously, sales growth in Superdry stores has come under pressure. This has been a drag on profit growth from faster-growing online sales.

The company has responded by cutting planned expenditure on new owned stores. It will focus on online and wholesale channels instead.

Profit expectations have slipped lower, but City analysts still expect the firm to report a 12% increase in earnings in 2018/19. At around 1,000p, the shares trade on a forecast P/E of 9.4, with a prospective yield of 3.7%. With net cash of £75m and stable profit margins, I think Superdry deserves a buy rating.

A one-way bet on the USA?

888 Holdings (LSE: 888) was one of the first companies to get involved in the US market six years ago, when sports betting was legalised in Nevada. It’s now operating in partnership with local firms in all three US states where sports betting has been legalised.

Many more states are expected to follow and 888 seems well positioned to expand in this market. This growth channel should help to offset slowing markets like the UK, where sales fell by 18% to $87m during the first half of the year.

Group sales were almost unchanged during the six-month period, up by 1% to $273.2m. Despite this flat performance, reduced marketing spend helped lift adjusted pre-tax profit for the half-year by 13% to $42.5m.

Analysts expect full-year adjusted earnings to be flat at $0.20 per share, putting the stock on a forecast P/E of 12. A return to growth is expected in 2019. In the meantime, shareholders are receiving a 6% dividend yield.

For investors who don’t mind investing in sin stocks, I think 888 could be a decent buy at this level.

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.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Superdry. 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

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

Dividend deals! 2 passive income stocks that still look undervalued

Royston Wild explains why these FTSE 250 passive income stocks might STILL be too cheap to miss, despite theirrecent price…

Read more »

Middle-aged Caucasian woman deep in thought while looking out of the window
Investing Articles

Is BT Group one of the FTSE 100’s greatest value shares?

BT's share price looks like a bargain when you look at the P/E ratio and dividend yield. Is it one…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Investing Articles

The National Grid share price just plunged another 10%. Time to buy?

The National Grid share price is one of the FTSE 100's most stable, and nothing much happens to it? Well,…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

Up 15% in 3 months, but I still won’t touch Vodafone shares with a bargepole

Harvey Jones has been shunning Vodafone shares for years. The FTSE 100 stock is finally showing signs of life, but…

Read more »

Growth Shares

This UK stock could be like buying Nvidia in 2021

Jon Smith thinks he's missed the boat with Nvidia shares, but flags up a UK stock that has some very…

Read more »

Businesswoman calculating finances in an office
Investing Articles

The FTSE 100’s Intertek delivers a bullish update — can the share price soar?

I’d describe Intertek as a quality business with a decent dividend income, but will the share price shoot the lights…

Read more »

Market Movers

Up another 10% yesterday, how high can the Nvidia share price go?

Jon Smith talks through the latest results but flags up why further gains could be harder to come by for…

Read more »

Investing For Beginners

Down 43% in a year, I think this value stock is primed for a comeback

Jon Smith flags up why a FTSE 250 share has fallen so much in the recent past, but explains why…

Read more »