This FTSE 250 share dived 13% last week. I’d buy it now!

This FTSE 250 share dived by 13% last week, making it the index’s second-worst performer. But after steep price falls, I see this stock as a screaming buy.

| 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.

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop

Image source: Getty Images

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.

As a long-term value investor, I often scour the FTSE 100 and FTSE 250 indexes for undervalued shares.

Ideally, I’m looking for good businesses whose shares trade on low multiples of earnings and offer market-beating dividend yields. In my latest search of the mid-cap index, I found one cheap FTSE 250 stock hiding in plain sight.

A 240-year-old business

My hidden treasure is investment manager Man Group (LSE: EMG) — the world’s largest listed hedge-fund firm.

Although the company uses highly sophisticated algorithms to trade securities globally, its origins date back to 1783. Indeed, the brokerage firm’s contract to supply the Royal Navy with rum ran from 1784 to 1970.

Over two centuries, Man grew to become a major player in trading commodities such as sugar, rum, coffee and cocoa. This trading expertise eventually led the group to become a leading asset manager, using systematic-trading strategies in financial markets.

The group listed in London in 1994 and in 2000 split into privately owned commodity trader ED&F Man and quoted financial firm Man Group.

This London-based company now employs more than 1,400 people worldwide. At end-2022, it managed assets worth $143.3bn (down 4% in a year) for a wide range of private and institutional investors.

Man Group shares slide

Earlier this year, this FTSE 250 stock was riding high. Just over a month ago, it hit a five-year peak of 293.8p on 3 March. Since then, this stock has fallen steeply, as a banking crisis rocked global markets.

Last week alone, this stock fell almost 13%, making it the second-worst performer in the FTSE 350 index. Here’s how the shares have performed over eight different periods:

Current share price210.6p
One week-13.0%
One month-26.4%
Three months-5.6%
Six months-8.0%
One year-13.4%
Two years+28.0%
Three years+67.5%
Five years+20.5%

Looking at this table, I see two trends. First, Man Group shares have been weak in 2022-23, losing more than a quarter of their value in one month. Second, this stock has produced positive returns over two, three and five years.

To me, this suggests that this £2.6bn firm’s stock may be a victim of short-term selling weakness. But as a long-term investor, my goal is to capture future cash dividends and capital gains. Hence my recent keen interest in this sliding stock.

I’d gladly buy this share today

What’s more, Man Group’s current fundamentals seem very attractive to me. After March’s steep falls, this share trades on a historic price-to-earnings ratio of 5.7, for an earnings yield of 17.5%.

In addition, its dividend yield of 6% a year is way ahead of the FTSE 100’s yearly cash yield of 3.7%. Even better, it’s covered 2.9 times by earnings, which is a solid margin of safety. Also, the group is buying back another $125m (£101m) of its shares.

Obviously, as a leading hedge-fund manager, Man Group’s earnings can fluctuate widely, especially in volatile markets. And if financial markets melt down again, the company’s stock could take another beating. Also, a run of poor fund performance could lead to clients withdrawing funds.

Even so, this FTSE 250 share looks far too cheap to me. Hence, I’ve added it to my buy list today. If only I had some spare cash to buy it right now!

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.

Cliff D'Arcy has no position in any of the shares 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.

More on Investing Articles

Smart young brown businesswoman working from home on a laptop
Investing Articles

Should I be watching the Greatland Gold (LSE: GGP) share price?

Recent rallies in valuable metal prices has boosted the Greatland Gold share price, but is there still an opportunity for…

Read more »

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

The abrdn share price is down 23% in the last year, should I buy?

Asset management firms have had a rough time lately, but with the abrdn share price down heavily, is now the…

Read more »

Hand of a mature man opening a safety deposit box.
Investing Articles

If I’d invested £5k in red hot BAE Systems shares 5 years ago here’s what I’d have today

BAE Systems shares have smashed the FTSE 100 for years and Harvey Jones is keen to buy more as they…

Read more »

Investing Articles

How I’d aim to earn £16,100 in passive income a year by investing £20k in a Stocks and Shares ISA

Harvey Jones is building a portfolio of high-yielding FTSE 100 dividend stocks that should give him a high and rising…

Read more »

Investing Articles

Down 8% in a month! The BP share price is screaming ‘buy, buy, buy’ at me right now 

When crude oil falls, the BP share price invariably follows. Harvey Jones is wondering whether this is the right point…

Read more »

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

Could the 9.8% M&G dividend yield get even bigger?

Christopher Ruane reckons that, although the M&G dividend yield is already close to a double-digit percentage, it could get better…

Read more »

Investing Articles

How much passive income could I earn by putting £380 a month into a Stocks and Shares ISA?

Christopher Ruane explains how he'd aim to turn a Stocks and Shares ISA into four-figure passive income streams each year.

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

2 passive income stocks I’m buying before an interest rate cut

With the market expecting interest rates to fall in August, time might be running out for investors looking to buy…

Read more »