Best shares to buy now: my top 3 FTSE 250 stocks

These FTSE 250 stocks include a high-tech engineer and a specialist bank. Roland Head reckons they’re among the best shares to buy today.

| 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.

Some of my most profitable investments have been in FTSE 250 shares. Although the past is no guarantee of future performance, the mid-cap index contains many of the shares I’d like to buy today.

Today, I’m looking at three FTSE 250 stocks I reckon offer a great mix of growth, income and value.

Under the radar

Defence engineering group Ultra Electronics (LSE: ULE) has been in business for 100 years. Since its listing on the London Stock Exchange in 1996, Ultra’s share price has risen by almost 600%, and its dividend has never been cut.

I think this business has the potential to keep growing. Ultra Electronics builds sub-systems used by most of the western world’s biggest defence contractors. Disruption was minimal last year, with revenue up 5% to £860m and pre-tax profit 8.7% higher, at £114.5m.

The biggest risk I can see is that almost a quarter of Ultra Electronics’ revenue comes directly from the US Department of Defense. If this relationship changed, I think it would cause serious problems. There’s no sign of this happening at the moment, but it’s something I’d monitor.

Ultra shares currently trade on 16 times 2021 forecast earnings, with a 2.9% dividend yield. This FTSE 250 stock is on my list shares to buy now.

I’d buy this instead of oil

My next pick is a relatively new arrival on the London Stock Exchange. Vivo Energy (LSE: VVO) is an African business that sells Shell-branded fuels and lubricants in 23 African countries. The group’s operations include selling aviation and marine fuel, in addition to running more than 2,300 service stations.

Big oil producers including Royal Dutch Shell are already placing a growing emphasis on their retail and marketing operations, as they prepare for the switch to electric cars.

In my view, Vivo Energy is a pure-play way to invest in this opportunity. I reckon service stations — with convenience stores and cafés — are here to stay. Even if we switch to electric cars, we’ll still need fast recharging points on longer journeys.

African markets offer the added opportunity of younger, faster-growing populations. Of course, they also carry some extra risks. Political instability is a concern in some areas, while underdeveloped infrastructure could limit good quality growth opportunities.

Even after the gains seen since November, Vivo still trades on just 13 times forecast earnings, with a forecast yield of 3%. I see this as a long-term growth opportunity.

A dividend share to buy now?

My final pick is Paragon Banking (LSE: PAG). This specialist bank has a market-cap of £1.3bn and is focused on the buy-to-let mortgage market.

For me, one attraction of this business is that Paragon’s specialist focus means it’s more profitable than the big high street banks. Paragon’s return on equity — a key measure for banks — has averaged 11.5% since 2015, compared to 5.2% for Lloyds Banking Group.

Paragon’s latest update reports “low levels of arrears” and “strong capital ratios.” However, if the economy slumps as we come out of the Covid-19 pandemic, we could see much higher levels of bad debt. This would hit Paragon’s profits and could trigger a dividend cut.

As things stand, Paragon stock trades slightly above its book value and offers a dividend yield of around 4%. Given growing demand for rental housing, I think this business could deliver steady growth in the coming years. It’s a share I’d be happy to buy today.

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 owns shares of Royal Dutch Shell B. The Motley Fool UK has recommended Lloyds Banking Group. 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

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »