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

The following two FTSE 250 stocks have seen their share prices surge in recent months but their valuations remain undemanding, at least for now.

Red hot

It has been a good day for Vesuvius (LSE: VSVS), a global leader in molten metal flow engineering, whose share price is up almost 9% after this morning’s trading update. This caps a good year for the group, whose share price has nearly doubled from 331p to 590p over the last 12 months.

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Vesuvius has benefitted from encouraging signs of improvement in the global steel market, a trend that has driven a strong first quarter in 2017, making up for a relatively weak final quarter last year. Management recognises that these are early days and warns that predicting market resilience is never easy, but assured markets that it was “cautiously optimistic” about its 2017 trading performance.

Ready to blow

Vesuvius has been helped by 5.7% year-on-year growth in global steel production, as reported by the World Steel Association. However, this starts from the relatively low baseline of Q1 2016, and full-year 2017 growth expectations will be materially lower than this figure. Management is also concerned about specific markets, with demand for light vehicles slowing in the US, and heavy truck and mining sales showing only slight signs of recovery.

The firm continues to seek out restructuring opportunities, with total targeted savings of £45m a year. It has also benefitted from sterling weakness, although that may now reverse. The outlook is bright, with forecast earnings per share (EPS) growth of 12% this year and 10% in 2018. This is available at an undemanding forecast valuation of 15.4 times earnings. However, revenues look set to rise only slowly, so much of this is down to cost-cutting. A 3% yield covered 1.8 times is solid but not spectacular. Markets evidently like what they heard today and Vesuvius looks set to keep bubbling along nicely, providing the global economy does.

Defensive play

Meggitt (LSE: MGGT) has been hitting the highs lately, its share price rising 20% in the past year alone, of which 12% came in the last three months. However it still looks affordable, trading at just 13.81 times earnings.

The group, which specialises in high performance components and sub-systems for the aerospace, defence and energy markets, was given extra lift-off after reporting revenue growth of 9% last month. It was boosted by weaker sterling, which beefed up the value of its overseas earnings. Civil aerospace, organic aftermarket revenues and original equipment revenues all grew 3% organically, although military revenues declined 5%, and energy revenues also declined.

Trump play

The future looks steady, with anticipated 2%-4% organic revenue growth for the year, in line with guidance issued in February. The outlook for its military division should also be brighter, assuming that President Trump gets at least some of his spending package through Congress.

EPS are forecast to rise a steady 7% this calendar year and 5% in 2018. These steady growth prospects are yours for an attractive forward valuation of just 12.4 times earnings, while the forecast yield of 3.3% is handily covered 2.3 times, suggesting room for progression. I’m hoping that Meggit will fly to new heights.

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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended Meggitt. 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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