While the FTSE 250’s performance in the last few years may have been somewhat disappointing, the mid-cap index continues to offer long-term growth potential.
In fact, its 2% annualised growth since 2015 could indicate that it is now undervalued relative to other major indices. That’s especially the case since it has a dividend yield of 3.2%, which is historically high for the index.
With that in mind, here are two FTSE 250 shares that could be worth buying now within a Stocks and Shares ISA.
International energy services company Hunting (LSE: HTG) released an encouraging trading update on Thursday for the first half of its financial year. It has traded in line with management expectations, with the US onshore completions market showing signs of improvement during the period. There have also been increased activity levels in the North Sea and Middle East, which suggests that improved operating and financial performance may be ahead.
The company expects to report a rise in revenue versus the same period of the previous year, with EBITDA (earnings before interest, tax, depreciation and amortisation) also due to be up on the comparable figure from the prior year.
Although the energy services industry faces an uncertain period, Hunting appears to have an improving outlook. The company is forecast to post a rise in earnings of 23% in the next financial year. Since it trades on a price-to-earnings growth (PEG) ratio of just 0.5, it seems to offer a wide margin of safety. As such, it could be worth buying on a long-term outlook, with there being the potential for volatility due to it being an uncertain period for the oil price.
A volatile oil price could also affect the financial prospects for Tullow Oil (LSE: TLW). The company’s recent operational update showed that it is making significant progress in Kenya as it prepares to reach a Final Investment Decision (FID). It is also expecting to commence its drilling campaign in Guyana later in the month, with the spud of the first of three wells planned for 2019.
It remains on track to produce between 90,000 and 98,000 barrels of oil per day (bopd) for the full year. It expects free cash flow to be $550m for the full year, which could help to reduce debt and strengthen its balance sheet.
Of course, should the oil price come under pressure, the company’s financial outlook is likely to suffer. However, at the present time, Tullow Oil is expected to report a rise in earnings of 9% in the next financial year. Since it trades on a PEG ratio of 1.2, it appears to be fairly priced.
As with all oil and gas companies, Tullow Oil is susceptible to a rapidly changing operating environment. But with strong recent performance and a low valuation, its risk/reward ratio could be enticing.
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Peter Stephens has no position in any of the 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.