The Motley Fool

Why I’d ignore this FTSE 250 ‘super stock’ and what I’d buy instead

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.

I can remember when the share price of FTSE 250 firm Aggreko  (LSE: AGK) was powering upwards and the provider of modular, mobile power generators looked like a high-quality outfit with robust and growing operations.

Indeed, from early 2009, the share price shot up by more than 500% over the following three-and-a-half years with business boosted by events such as the 2012 London Olympics. But the share price began a long decline from its peak at the end of summer that year and is now around 65% lower. By early 2016, the outlook statements had dropped their bullish tone and the company seemed braced for softer trading ahead.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Slipping earnings

The financial record over the past five years shows earnings generally falling annually and the dividend has been essentially flat. But the operational and share-price slide could have run its course. City analysts following the firm have pencilled in earnings rises for the current year and for 2020. The share-price chart shows something of a consolidation, suggesting the lows might be in. And one popular share research website has labelled Aggreko as a Super Stock because of its strong showing against value, quality and momentum indicators.

Meanwhile, the valuation isn’t as racy as it was in the days of vibrant trading I described earlier. With the share price close to 829p, the forward-looking price-to-earnings ratio for the current year is around 16 and the anticipated dividend yield about 3.3%.

However, I’m concerned by the way Aggreko struggled to maintain its earnings over the last few years. The company has revealed its vulnerability to market cycles, and if we see a general macroeconomic slump, I reckon earnings could fall off a cliff, taking the dividend and the share price down too.

What makes this company special?

To me, it’s not worth investing in any individual company share unless I believe the stock has the potential to outperform the general stock market. I’m uncertain about Aggreko’s ability to do that so I’m avoiding the shares. In this case, I’d rather look at other shares or invest in a low-cost, passive index tracker fund that follows the fortunes of the market.

There are many choices with trackers. Perhaps I’d go for the HSBC FTSE 250 Index Class S – Accumulation, tracking the FTSE 250 index of which Aggreko is a constituent. Or I could look at the Legal & General UK Index Class C – Accumulation, which follows the FTSE 350 index and comprises the shares in the FTSE 250 index and those in the FTSE 100 index of larger companies. Or maybe I’d track the UK’s largest public limited companies with the Legal & General UK 100 Index Trust Class C – Accumulation.

You’ll notice that all three of the tracker funds I’ve mentioned are the accumulation version rather than the income version. Accumulation trackers automatically reinvest the dividends back into your investment, which sets you on the path to compounding your money.

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

Kevin Godbold has no position in any share 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.