The Motley Fool

This FTSE 250 stock is down over 55% in 2020. Here’s what I’d do now

Due to the Covid-19 pandemic and government lockdowns, aircraft have been grounded for many months. Although restrictions have eased and flights have resumed, airlines are still not utilising their full fleets. With that in mind, it’s not surprising that aviation stocks on the FTSE have taken a huge hit. However, with the beginning of a recovery finally in sight, I’m starting to look at interesting opportunities in the aviation industry.

One stock I like the look of is Meggitt Group (LSE:MGGT).

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

FTSE 250 opportunity

Meggitt Group is an engineering firm that operates in three divisions: civil aerospace, defence, and energy. Aerospace produces core components that many aircraft rely on. MGGT’s markets for aerospace include civil aircraft, helicopters, engines, and business jets. Over 50% of the group’s revenue comes from its aerospace division. Defence is the second biggest revenue generator for MGGT, with over 30% from military aircraft, vehicles, naval, and space markets.

Since the turn of the year, MGGT has lost over 55% of its share price value, primarily due to the market crash. A pre-crash high of nearly 700p per share in January is a stark contrast to its lowest point of 217p in April. We are four months on and shares can be purchased at just 277p per share. I believe there is a good opportunity to pick up cheap shares.

MGGT’s defence division is where I feel the opportunity lies. Aerospace has been most affected but I believe the aviation industry as a whole will slowly recover.

Performance

Last week, MGGT released interim results for the six months ending 30 June 2020. As expected, its aerospace division has been adversely affected while defence performed well. This offset some of the losses of aerospace and energy. Overall, group revenue was down 13%. Defence revenue grew 7% whereas aerospace saw revenue decrease by 27%, and energy was also down 6% compared to the previous year. Underlying profit was 37% lower at £102m compared to the same period last year.

Due to the economic downturn, initiatives to conserve cash meant MGGT is on track to deliver cash savings of £400 to £450m for the full year. MGGT also has a good amount of liquidity to see it through the current period with almost £900m in cash available across its revolving credit facilities (RCF). In line with many other FTSE-listed companies, MGGT decided to suspend an interim dividend to retain cash.

Here’s what I’d do now

During the economic downturn I have actively discouraged purchasing airline stocks across the FTSE because there were just too many unknowns. Now that restrictions are easing, and given pent-up demand, I’m more confident in a recovery in the aviation industry.

Meggitt Group has a good track record of profit, stability, and a burgeoning defence division. It says that its parts are fitted to “almost every jet airliner, regional aircraft and business jet in service”. This fills me with confidence for the aerospace arm of the business.

That said, I think defence will be a priority for many governments due to the pandemic and economic uncertainty. If you are looking for a contrarian buy this may well be one for you at its current rock bottom price. You may have to show patience with this one, though.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

Jabran Khan has no position in any 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.