Forget the Cash ISA! I’d rather buy these 2 FTSE 250 income and growth stocks

Harvey Jones says these FTSE 250 (INDEXFTSE:MCX) stocks are on a roll right now.

| 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.

Comparison site and switching service Group (LSE: MONY) has enjoyed a barnstorming 2019, its share price rising 40% so far this year. Long-term investors have reasons to be cheerful as well, with the stock more than doubling their money over the past five years, rising 114%. 

In the Money

But it had to slow at some point, and that moment is now. The stock was down 3% on publication of its group interim results for the six months to 30 June, despite a positive set of numbers with group revenue up 15% to £199.4, “driven by exceptional energy switching.”

Profit after tax rose 18% to £50.2m, while “strong” operating cash flows jumped 20% to £51.4m. In fact, the only negative figure I can find is a rise in net debt, with last year’s net cash position of £24.4m turning negative at £12.6m.

As Roland Head recently pointed out, management is investing its plentiful cashflows on next generation of services to boost automated switching and tighten customer relationships, and this could be money well spent. Given that the FTSE 250 stock now has a market-cap of more than £2bn, I can’t get too worried about it. 

Reinvent that

I can only assume the downbeat market response is because the group has to keep growing fast to justify today’s toppy valuation of 22 times forecast earning. CEO Mark Lewis is still confident of delivering market expectations for the year and hailed the success of the group’s Reinvent strategy. The interim dividend was increased 5%, reflecting a progressive policy which puts the forecast yield at 3.5%.

The group distributed £83.4m wealth of dividends during the period, including a £40m special divi announced in February, up from £40.7m last year. City earnings projections look positive at 6% and 8% for the next couple of years and, with cash-strapped Britons still keen on switching, the Moneysupermarket share price may continue to reap the rewards, especially if the Reinvent strategy bears further fruit. 

Compare and contrast

It’s interesting to compare the Moneysupermarket stock with rival Group (LSE: GOCO), a relative minnow with a market-cap of just £357m. The home of Gio Compario has been out of favour with investors and is down nearly a third over the past year. But lately, there’s been signs of life, with a 20% pick-up in the last six months.

Inevitably, it’s cheaper than Moneysupermarket, trading at 14.6 times forward earnings. However, earnings prospects look more volatile with a 25% drop forecast for 2019, followed by growth of 22% in 2020. The forecast dividend is less generous at 2.1%.

GOCO for it

Lower expectations could work in favour of the GoCompare share price, offering it more scope for uplift. Last year’s operating profit margins of 24.7% were strong, while its return on capital employed was a thumping 105%. It’s also looking to drive customer numbers with its ‘weflip’ regular energy switching service.

Investors have woken up to the opportunity, but there could be further growth to come. Do you favour Moneysupermarket’s momentum, or GoCompare’s recovery potential? It’s a tough comparison, but I’d buy either rather than leave my money in a Cash ISA paying 1% or less.

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.

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended 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

British union jack flag and Parliament house at city of Westminster in the background
Investing Articles

Labour winning the general election would be positive for UK stocks, says JP Morgan

One mega-bank thinks certain UK stocks could benefit following the 4 July election. This writer considers a FTSE share that…

Read more »

Older couple walking in park
Investing Articles

No savings at 40? Here’s how I’d aim to retire comfortably with FTSE 100 stocks

It's never too late to begin investing in FTSE 100 stocks for retirement. Royston Wild reveals three steps to help…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Down 17%, is National Grid’s share price a FTSE 100 bargain?

National Grid's share price has taken a battering following a multi-billion-pound rights issue and dividend rebasement. Is it now too…

Read more »

Environmental technology concept
Investing Articles

Up 150% this year! Can NVIDIA stock keep on soaring?

Christopher Ruane explains why NVIDIA stock has soared over 150% already this year, where it might be going -- and…

Read more »

Investing Articles

Down 44% in a year, here’s why the Aston Martin share price could keep struggling

Not only has the Aston Martin share price collapsed in recent years, our writer sees its current business performance as…

Read more »

Investing Articles

I’m considering these 2 high-growth stocks to buy as a technology investor

Our author thinks Kainos and Softcat could be two of Britain's best tech investments. He thinks the risks in the…

Read more »

Abstract 3d arrows with rocket
Investing Articles

A once-in-a-decade opportunity to buy these FTSE 100 growth shares before they rocket?

Our writer highlights two FTSE 100 growth stocks he thinks could seriously outperform as interest rates are cut and economic…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing For Beginners

Down 14% in a month, is this the FTSE 100’s biggest bargain right now?

Jon Smith mulls over whether he should buy one of the worst-performing FTSE 100 stocks based on it being an…

Read more »