I think these FTSE 250 shares are too cheap to miss this summer. Here’s why I’d buy them today.
Spire Healthcare Group
Private healthcare providers such as Spire Healthcare Group (LSE:SPI) are thriving as the pressure on the National Health Service (NHS) increases.
The number of patients paying for treatment, or using private medical insurance, is soaring in response to high waiting lists. Meanwhile, the number of patients being referred by the NHS is also growing strongly as state-run hospitals struggle with patient numbers.
Last year, Spire sourced a quarter of revenues from the NHS. It helped push revenues and adjusted operating profit 8.3% and 30.2% higher respectively, to £1.2bn and £105.6m.
Despite government assurances to cut waiting lists, the number of patients seeking treatment continues to steadily rise. In fact, it hit a new peak of 7.6m at the end of June. It seems businesses like Spire will continue to trade strongly, given continued underinvestment in the state service.
City analysts share my take. Supported by the firm’s statement in May that “good momentum has continued from the end of last year”, they think earnings will jump 35% in 2023 and by a further 74% next year. Another 33% increase is tipped for 2024 too.
This leaves the company’s shares looking extremely cheap. A forward price-to-earnings growth (PEG) ratio of 1.1 for this year falls to 0.3 and 0.5 for 2024 and 2025. A reminder that any reading below 1 indicates that a stock is undervalued.
Private healthcare groups like this may have a fight to fill vacancies amid shortages of nursing professionals. In this landscape it can also expect to pay significantly higher wages compared with previous years. But I still expect the firm to continue growing profits strongly.
Babcock International Group
Engineering business Babcock International Group (LSE:BAB) is another value stock on my radar this summer. An increasingly unstable geopolitical landscape suggests sales of its defence products should remain rock-solid.
Global arms spending hit record peaks last year and is tipped to rise strongly for the rest of the decade. Analysts at The Business Research Company, for instance, expect the defence market to record annual revenues above $838bn in 2031. That’s a significant bump from around $474.7bn in 2021.
Babcock — which provides engineering services for boats, planes and land vehicles — is already illustrating its ability to flourish in this environment. Organic revenues rose 10% in the year to March, to £4.4bn, while its contract backlog increased 7% organically to £9.5bn.
Forecasters believe earnings at the FTSE 250 firm will rise strongly over the medium term, at least. Annual profits are tipped to jump 112% in this financial year. A further 11% bottom-line increase is expected for financial 2025 too.
This leaves the company trading on forward PEG ratios of just 0.1 and 0.8 for these years. Despite the constant risk of project development issues, I think Babcock shares are a great buy today.
