When markets are close to record highs and popular shares look expensive, I like to keep an eye on stocks that have seen big falls in the last 12 months.
In amongst the stocks that deserve to be cheap, I often find a handful of shares that are unloved but good businesses. Potential bargains.
My latest trawl through the FTSE 250 mid-cap index has unearthed three dividend stocks I think offer good value for buyers at current levels.
A turnaround buy?
Medical technology company ConvaTec Group (LSE: CTEC) has been a disappointing performer since its 2016 flotation. Like many such firms, it floated at a demanding valuation that became unsustainable when growth rates disappointed.
Despite this, I think it’s fundamentally an attractive business. ConvaTec makes a range of medical products used in areas such as wound care, ostomy, incontinence and infusion. Many of the firm’s products are disposable or consumable, making them repeat buys for patients and hospitals.
A trading statement on Friday confirmed that growth remains challenging. Sales fell by 2% to $430.6m during the first quarter. However, full-year expectations are unchanged and ConvaTec expects to generate an adjusted operating profit margin of 18%-20% this year — a solid result.
The shares now trade on 12 times forecast earnings and offer a 3.5% dividend yield. With earnings backed by strong cash flows, I think ConvaTec offers decent value at this level.
Retail isn’t dead
Retailers with big high street chains are out of favour at the moment. But in my view there are likely to be some long-term winners in this sector.
One retailer I own myself is Dixons Carphone (LSE: DC). This firm is the UK’s largest retailer of home electricals, computers and mobile phones. It also has significant market share in Scandinavia and Greece.
Sales were steady over the peak Christmas period, and newish chief executive Alex Baldock is working hard to expand online and build a larger customer credit business — a key area of growth.
Consumer demand for the latest gear is still strong and Dixons Carphone’s scale means it can price competitively. In my view, sales are unlikely to collapse unless unemployment or interest rates rise. As far as I can see, there’s no sign of either at the moment.
With the stock trading on seven times forecast earnings and offering a 5.2% dividend yield, I rate this retailer as a buy.
This wheeler-dealer offers a 6% yield
City firm TP ICAP (LSE: TCAP) isn’t exactly a household name. But it is the world’s largest interdealer broker. What this means is that its teams of dealers act as middlemen, negotiating financial deals between clients such as investment banks and oil traders.
The rise of electronic trading has put pressure on this business model, which is changing to include more technology and data services. But TP ICAP’s scale and expansion into the oil market have helped the firm to adapt. Although market conditions can affect the group’s profits, this £1.6bn City firm ended last year with net cash of more than £600m.
The shares have halved in value since the start of 2018 and now trade on 9 times forecast earnings, with a 6% dividend yield. I think this is probably too cheap and would rate the shares as a buy.
Discover the name of a Top Income Share with a juicy current dividend yield of around 6% that has got our Motley Fool UK analyst champing at the bit! Find out why he thinks “the stock’s current weakness may offer us the chance to buy a proven dividend performer at what could be a bargain price”. Click here to claim your copy of this special report now — free of charge!
Roland Head owns shares of Dixons Carphone. 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.