The FTSE 250-listed transport operator Stagecoach (LSE: SGC) is a business facing a few headwinds and with a history of fluctuating profits and revenues. The big challenge it currently faces is whether it will be able to operate train services in the UK. Facing such a fundamental challenge, perhaps it’s no surprise that the shares have a P/E of around seven – which is very low and may well be a warning that investors expect more bad news.
Going to court
Stagecoach will be facing the government in court next year as a result of the decision to ban the firm from bidding for three rail contracts. The company was disqualified from bidding for the East Midlands, West Coast and South Eastern franchises after the Department for Transport said it failed to meet pension deficit requirements.
The consequence of this is yet to be understood. In the short term, it forces the company to try to create new revenue streams and puts pressure on its bus services and international operations to pick up the slack from a drop in UK rail income.
There is a higher than average dividend yield of 5.73% on offer to investors based on the current share price, which perhaps is reward enough for investors willing to take a chance on the outcome of the court case next year.
Brexit hits hiring
The share price of recruiter Page Group (LSE: PAGE) has staged a bit of a recovery since falling back in July following a profit warning. Back then, the FTSE 250 group warned that annual operating profits would be at the lower end of a range between £156.5m and £168m.
The UK was a poor performer leading to blame being placed on Brexit uncertainty for the warning – something that could now happen again given the deadline for leaving the EU has once again been pushed back.
Indeed, in October, the group once again had bad news for investors, it said it now expected full-year operating profit to be between £140m and £150m.
The US-China trade war and deteriorating conditions across Europe worsened the investment case for the group. Fears of a global economic slowdown will do little to help improve investor sentiment, so I don’t expect the shares to outperform the market in the short term.
Page Group does seem like a good business, but I do think recruiting, as an industry, will remain under pressure for some time and this will be reflected in the share prices of companies like Page.
That said, with the dividend yield being about 5.65% when special dividends are included, I think the shares offer plenty of income while an investor waits for market conditions to improve, at which point I’d expect the shares to rocket.
There’s little doubt both of these businesses are encountering big problems, but with a past record of success and high dividend yields, I favour them as a way of getting far richer and I strongly believe they will outperform both gold or Bitcoin.
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Andy Ross owns no share 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.