2 FTSE 250 stocks I think could make you seriously rich

These two low-key FTSE 250 (INDEXFTSE:MCX) stocks have bright futures that aren’t yet widely recognised by the market, argues G A Chester.

| 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.

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.

Vivo Energy (LSE: VVO) and UDG Healthcare (LSE: UDG) aren’t as well-known names as some of their FTSE 250 peers, like Royal Mail and WH Smith. Nor have they attracted intense interest on financial discussion boards, like fellow mid-caps Sirius Minerals and Plus500.

However, a low-key profile can be a good thing when it comes to investing. Such a company may have a bright future that isn’t yet widely recognised by the market. I believe Vivo Energy and UDG Healthcare are two such companies. They’re thriving, profitable businesses, and have long-term ‘structural’ growth drivers that could potentially make today’s investors seriously rich.

Rising prosperity in Africa

Vivo is a pan-African retailer and marketer of Shell and Engen-branded fuels and lubricants. It has a network of over 2,100 service stations in 23 countries, which also provide customers with non-fuel services including shops, card services and takeaway and casual dining restaurants in partnership with major brands such as KFC and Burger King. Its commercial arm serves customers across a wide range of industries.

Vivo looks to me like a very good play on the long-term story of rising prosperity in Africa. Today, in a trading update ahead of its AGM, it reported “a positive start to 2019 with performance in line with expectations.”

City analysts expect the company to post earnings per share (EPS) of $0.133 (10.15p at current exchange rates) this year, rising 13.5% to $0.151 (11.5p) next year. At a share price of 125p (a little down on the day), we’re looking at an undemanding current-year price-to-earnings (P/E) ratio of 12.3, falling to 10.9 on the 2020 forecast. Dividend forecasts of $0.04 (3.05p), followed by $0.044 (3.36p), give handy yields of 2.4% and 2.7%.

The company floated at 165p a share just about a year ago. Its balance sheet looks decent, with modest debt. And given the near-term and long-term growth prospects, the shares look very buyable to me at their current level.

Health spending and outsourcing trends

The structural growth drivers I see over at UDG Healthcare are rising health spending in a world where people are living longer, and a trend in the industry to outsource the kinds of services UDG offers.

It enables and supports large pharmaceutical to small biotech companies to bring their products to market, ensuring patients can access these drugs and providing support to educate healthcare professionals and patients on the products. In short, it does a whole load of stuff that allows its clients (currently over 300, including the top 30 pharma companies) to concentrate on their core business. It has operations in 26 countries and delivers services in over 50.

I’m expecting 5% EPS growth this year to $0.486 (37.1p at current exchange rates), with growth accelerating to 10% next year and EPS rising to $0.534 (40.8p). At a share price of 678p, we have a P/E of 18.3, falling to 16.6. Dividend forecasts of $0.18 (13.7p), followed by $0.20 (15.3p), give yields of 2% and 2.3%.

While UDG’s P/Es are somewhat higher than Vivo’s and yields are somewhat lower, the healthcare stock also looks very buyable to me at its current valuation. In a defensive industry with good growth prospects, and the company having delivered dividend increases over three decades, the premium is well worth paying, in my book.

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.

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended UDG Healthcare and WH Smith. 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

Empty Stocks and Shares ISA? I’d snap up these 3 stocks to start with!

Sumayya Mansoor explains how she would start to build wealth from scratch with an empty Stocks and Shares ISA and…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

7.7% yield and going cheap! Why is this unknown FTSE 250 stock flying?

It's no household name, but there's one FTSE 250 stock with a high dividend yield and booming profits that looks…

Read more »

Photo of a man going through financial problems
Investing Articles

I’d stop staring at the Nvidia share price and buy this FTSE 100 stock instead

This writer reckons there is a smarter way to invest in Nvidia today without taking on stock-specific risk. Here is…

Read more »

Young lady working from home office during coronavirus pandemic.
Top Stocks

5 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Young Asian man drinking coffee at home and looking at his phone
Dividend Shares

These 3 FTSE 250 stocks offer me the highest dividend yields, but should I buy?

Jon Smith considers FTSE 250 shares with a very high yield, but questions whether the income is going to be…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Is FTSE 100 takeover target DS Smith a great buy?

A mega-merger between FTSE 100 giants DS Smith and Mondi has the City abuzz. But is there any value in…

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

The WPP share price dips as profits fall. Here’s why it could be a top dividend buy

I'm starting to think the WPP share price undervalues the stock, especially if the long-term dividend outlook comes good.

Read more »

Black father and two young daughters dancing at home
Investing Articles

A £3K investment buys me 632 shares in 2 stocks for a second income!

This Fool explains how a second income is possible through dividend-paying stocks and details two picks that could help her.

Read more »