The eyes of value investors seem mostly focused on the FTSE 100 at the start of 2024. But I like the look of a lot of FTSE 250 stocks right now.
I think a good number could come out well ahead in terms of price growth plus dividends, and I want to examine a few of them here.
Mid-cap growth?
First up is easyJet (LSE:EZJ). I’ve always steered clear of airlines due to their risks. They’re hostage to things they just can’t control, especially fuel prices. Oh, and global pandemics.
Oil is around $75 per barrel, and it could rise in the short term. But I think there’s a high chance of cheaper oil in the future.
Even after a bit of a recovery since November, we’re still looking at a forecast price-to-earnings (P/E) ratio of 8.7, dropping to 7.2 by 2026.
Now, that’s very uncertain. And I must stress that this is a risky sector. But easyJet shares look too cheap to me, and I see a good chance of growth by the end of 2024.
We should have a Q1 trading update on 24 January, and I’ll keep an eye out for that.
Interest rate cuts?
I’m turning to housebuilder Persimmon (LSE: PSN) next, as a FTSE 250 stock that has been hit hard by high interest rates.
A forward P/E of around 17 to 18 doesn’t look super cheap. But forecasts are often out of date compared to real world events, and these will have been made with high mortgage costs in mind. But those costs are already coming down, with Barclays and Santander cutting theirs as competition heats up.
The lastest economic outlook also suggests inflation could be down under 2% by April or May. So early Bank of England rate cuts look more and more likely.
I’d like to see how broker forecasts change once rates come down. Based on 2019 earnings levels, we could see the P/E dropping under seven.
Guessing at long-term earnings is the biggest risk right now, I think. And we could see more volatility until earnings start to grow. But dividend prospects look good too.
Oily growth?
Tullow Oil (LSE: TLW) is one of the top traded stocks in 2024 so far. The share price is still in the dumps, though, and that leaves the stock on a super low P/E.
In fact, forecasts put the ratio down as low as two, and dipping even further in the next couple of years. So why isn’t everyone snapping it up?
Well, Tullow shares have a hugely voltile history.
The big problem is debt. At the H1 stage, Tullow estimated year-end net debt at around $1.7bn. And that’s a company with a market cap of only £590m.
A November update looked solid, with the CEO talking of “c.$800 million of free cash flow between 2023 and 2025“. Still only half the net debt, though. And what if oil prices drop?
I see a good chance of a strong share price hike during the year. But I don’t like the longer-term risks.
