The UK-focused FTSE 250 has taken a battering in 2023 due to worries over the British economy. Even many rock-solid, quality stocks have fallen by the wayside as investors panic over what companies to buy and which to sell.
This provides fans of value stocks with a chance to build a five-star portfolio at little cost. Here are two top shares I’m hoping to buy next month.
Rising interest rates have been a huge drag on real estate investment trusts (REITs) like Assura (LSE:AGR). They’ve pushed up the cost of servicing their large debt piles and pulled property portfolio valuations lower.
This could remain an issue as the Bank of England tackles stubbornly high inflation. But I’d still buy the company today. I believe it’s too cheap to miss following recent price weakness (it’s down 35% over the past 12 months).
Right now Assura shares trade on a forward-looking price-to-earnings (P/E) ratio of just 13.5 times. This is well below historical levels that sit around the high teens to early twenties.
The company also carries a large 7.1% dividend yield for this financial year (ending March 2024). This is miles above the 3.5% average for FTSE 250 shares.
Assura has a terrific opportunity for impressive long-term earnings growth. Its target market — building and operating primary healthcare facilities in the UK — looks set for rapid expansion as the size of the country’s elderly population balloons.
And the company has built a strong development pipeline (of £483m as of March) to exploit this fast-growing property sector.
Unlike Assura, Senior (LSE:SNR) has actually gained value in 2023. Yet at current prices I believe it’s one of the FTSE 250’s best value stocks to buy.
City analysts expect annual earnings here to rise 54% this year. That leaves the aerospace business trading on a price-to-earnings growth (PEG) ratio of 0.5.
A reading below one indicates that a share is undervalued. What’s more, the reading remains below this benchmark through to 2025. Brokers predict further earnings growth of 37% and 40% in 2024 and 2025, respectively.
A bright outlook across its markets underpins these impressive forecasts. Senior’s core Aerospace division is thriving as the airline industry rebounds and defence budgets steadily climb. Meanwhile, orders at its Flexonics unit are benefitting from rising electric vehicle and renewable energy-related trading.
Supply chain issues pose an ongoing problem. But, encouragingly, trading here continues to impress, with revenues rising 20% in the first half and operating profit 35%.
I’m expecting company turnover to take off in the coming decades as global airlines rapidly build their fleets. In an encouraging update, Airbus recently hiked its 20-year forecast for new aeroplane deliveries (to 40,850 from 39,490).
And thanks to its strong balance sheet, Senior can give earnings a boost through further acquisition action. The company — which acquired fluid technology specialist Spencer Aerospace in November — has a net-debt-to-EBITDA ratio of just 1.6 times.