2 FTSE 250 bargains I’d buy before it’s too late

These FTSE 250 (INDEXFTSE:MCX) stocks look set for strong growth.

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Two FTSE 250 stocks that are very much on my radar at the present time are Hochschild (LSE: HOC) and Vectura (LSE: VEC). Analyst earnings forecasts for this year aren’t exactly sparkling for either company but looking to 2018 and beyond I see excellent growth prospects that lead me to class both stocks as ‘bargains’ at their current levels.

Bright future

The collapse of the silver price from over $30 an ounce at the start of 2013 to a low of under $15 an ounce at the start of 2016 naturally took a heavy toll on the revenues and profits of South American silver miner Hochschild.

However, a modest recovery in the price through 2016, together with an increase in production and a reduction in costs, saw top-line growth for the year and the bottom line in the black for the first time since 2012. Hochschild reported a 47% increase in revenue to $688m from $469m, with the bottom line swinging to a $63m profit from a £240m loss.

For the current year, the company has guided on record production of 37m attributable silver equivalent ounces, compared with 35.5m in 2016, although its guidance on all-in sustainable costs of between $12.2 and $12.7 an ounce is higher than the $11.2 an ounce achieved in 2016.

As things stand, the analyst consensus is for earnings to remain at last year’s level of 11 cents a share, before leaping to 21 cents a share in 2018. At a current share price of 260p — and at current exchange rates — these forecasts give a P/E 30, falling to 16.

I view this as an attractive valuation for a company that’s increasing output and confident in the sizeable potential in areas surrounding existing operations as well as in its ability to bring early stage projects through the pipeline.

And breathe

Respiratory drugs and devices specialist Vectura is another FTSE 250 stock where I see great value by looking forward to 2018. The company’s numbers are currently complicated by its merger with Skyepharma last June and also by changing its accounting year from a 31 March end to a 31 December end.

Vectura started 2016 with 410m shares in issue but ended the year with 678m, largely because the Skyepharma merger was an all-share job. The analyst consensus earnings forecast for calendar 2017 is around 4p a share, giving a high P/E of 35 at a current share price of 140p. However, with new products coming to market and annual merger synergy savings of at least £10m expected, earnings are forecast to rise to around 9p a share in 2018, giving a P/E of 15.6.

In its results last month, Vectura said it’s making “excellent progress” on the merger integration and realising synergies and management feels the company is “well-positioned to accelerate shareholder value creation”.

This is something I buy into because the scale of the combined group, which also has £92m cash and no debt, should make it a strong player across all the major respiratory classes. I can see more lucrative partnerships, a more rapid development of the company’s wholly-owned pipeline and scope for further strategic acquisitions.

As with Hochschild, I believe Vectura’s growth prospects for 2018 — and beyond — make the shares look very buyable at their current level.

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.

G A Chester has no position in any 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.

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