I’m looking for shares that are ready to rebound. Here are two recovering stocks I’d consider right now.

Specialist engineering services

Over the past three years, the trading environment has been difficult for James Fisher and Sons (LSE: FSJ). And the multi-year financial record shows earnings have been declining.

The company provides specialist engineering services to the marine, oil, gas and other global industries. Its operations are divided into the Marine Contracting, Specialist Technical, Offshore Oil and Tankships divisions. 

The share price has declined since its 2019 heights just above 2,000p. But today’s level near 328p means it’s risen by around 3% over the past year. Indeed, 2022 saw the stock essentially flatline.

However, the directors have been working to turn the business around. And the half-year report on 7 September offered some evidence they may be succeeding.

Operational progress in the second half of 2022 will likely be “materially stronger” than in the first half. There are “strong” order books in Offshore Oil and Marine Contracting. And there’s an “encouraging” pipeline of opportunities in the Specialist Technical division. Meanwhile, Tankships is “trading well”.

The directors expect full-year underlying operating profit to be “broadly in line” with 2021’s. And that suggests the declines in earnings might have been stopped. On top of that, net debt looks set to fall as well.

The company expects the geopolitical and economic climate to remain uncertain. But the directors are “confident” they’re taking the right steps to stabilise the business and “create a platform for sustained recovery”.

Meanwhile, the forward-looking earnings multiple for 2023 looks undemanding at just above seven. However, there’s a fair weight of debt on the balance sheet. And that may become problematic if the business gets into trouble with earnings again.

Nevertheless, the stock tempts me now, although for the time being I have no spare cash to invest.

Pharmaceuticals

A year ago, the Hikma Pharmaceuticals (LSE: HIK) share price was above 2,400p. But today, it stands near 1,552p.

The company develops, manufactures, markets and sells a broad range of generic, branded and in-licensed pharmaceutical products. And the sector is known for supporting businesses with consistent cash flow and steady shareholder dividends. 

A glance at Hikma’s multi-year trading and financial record shows that the business has lived up to expectations regarding those two indicators. And that’s even though earnings dipped a bit in 2020 when the pandemic struck.

On 3 November, the company released an upbeat trading statement. Executive chairman and CEO Said Darwazah said the company is seeing “strong” momentum in its Branded and Injectables businesses. And that reflects the benefits of growing breadth and differentiation in the product portfolio. 

However, the US generics market is competitive. But Darwazah nevertheless expects Hikma’s Generics business to grow in 2023. And City analysts have pencilled in an uplift in overall earnings of just over 13% for that year.

Of course, analysts can be wrong in their assumptions because all businesses run into operational challenges from time to time. But the forward-looking valuation looks reasonable with the earnings multiple just above nine for 2023. Although that rating looks bigger if we adjust for the firm’s debt pile.

Nevertheless, if I had spare cash I’d embrace the risks and buy some Hikma shares now.

The post 2 stocks ready to bounce back appeared first on The Motley Fool UK.

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Mind Gym 

What it does: Mind Gym provides courses designed to boost workers’ happiness, productivity and leadership skills. 

By Royston Wild. Trading news coming out of Mind Gym (LSE:MIND) has been quite impressive in recent weeks. Yet the AIM-listed business continues to trade in and around penny stock territory. 

However, I think the small cap could be a great stock for investors to buy in early December. I believe the release of half-year results on Friday 2nd could remind the market of its excellent sales momentum and lift its share price higher. 

Mind Gym provides services that help employees improve their wellness and their productivity.  With mental health coming increasingly under the spotlight, demand in this niche market could be about to boom. 

City analysts think so, too. They reckon Mind Gym — boosted by its acceleration in the digital arena — will record earnings growth of 31% and 129% in the financial years to March 2023 and 2024 respectively. 

Turnover leapt 11% in the six months to September, the company announced a month ago. Despite the worsening economic backdrop, I’m expecting December’s update to paint another sunny picture.  

Royston Wild does not own shares in Mind Gym. 

Calnex Solutions

What it does: Calnex is a technology company that specialises in testing and measurement services for telecommunication networks.

By Edward Sheldon, CFA. Calnex Solutions (LSE:CLX) continues to generate strong growth on the back of the global 5G rollout. For the six months to 30 September, revenue was up 38% to £12.7m. Meanwhile, diluted earnings per share were up 34% to 2.67p.

Looking ahead, I see the potential for further growth. In its recent H1 results, the company said that investment in telecoms infrastructure to deliver next generation connectivity “continues at pace”. It also advised that it had a strong order book moving into H2.

One thing I like about Calnex, aside from the growth potential, is the fact that the company is founder led. Research shows that founder-led businesses often turn out to be good long-term investments. Founder and CEO Tommy Cook also owns a huge amount of company stock, meaning management’s interests are aligned with those of shareholders.  

There are some risks to consider here. Component shortages/supply chain issues are one. Overall, however, I see a lot of appeal in the stock right now.

Edward Sheldon owns shares in Calnex Solutions.

Fisher James & Sons

What it does: Fisher James & Sons is a company focused on providing support and engineering services to the marine industry.

By Gabriel McKeown. It used to be tricky to find high-quality companies with low market capitalisation; however, the recent market turmoil has meant that there are now far more small-cap opportunities for UK investors. A prime example of this is Fisher James & Sons (LSE: FSJ), as the share price has fallen almost 85% from pre-pandemic levels.

Despite this share-price decline, the company’s earnings are forecast to grow considerably, signalling a rebound may be on the horizon. Earnings per share is expected to grow by over 40%, compared to 3% turnover growth, indicating that profit margins should improve. Additionally, free cash generation remains strong and is now above its three-year average level.

The company’s significant debt level has likely caused investors to avoid this opportunity. However, the interest cover ratio of 2.1 indicates that this can be covered comfortably by earnings. This financial stability is certainly encouraging, especially if market conditions begin to weaken.

Gabriel McKeown does not own shares in Fisher James & Sons.

Judges Scientific

What it does: Judges Scientific acquires and improves specialist scientific equipment manufacturing businesses serving a diverse range of industries.

By Zaven Boyrazian. Judges Scientific (LSE:JDG) owns and operates a diverse portfolio of scientific equipment manufacturing businesses acquired over the last two decades. It’s certainly catering to a niche market. Yet, its products are critical to the research process for many industries and scientific institutions.

Over the last five years, annual revenue growth has been a modest 5%. However, with management improving operational efficiency as well as exercising pricing power, operating margins have rapidly expanded from 1.7% in 2017 to 17.5% at the end of 2021. That’s more than double the industry average.

Being a highly acquisitive business does introduce some notable risks. The balance sheet could become compromised if the group executes an expensive buyout that fails to live up to performance expectations. However, given Judges Scientific’s track record of successful acquisitions, I feel this is a risk worth taking.

Zaven Boyrazian does not own shares in Judges Scientific.

Shoe Zone

What it does: Shoe Zone is a low-cost footwear retailer that sells shoes in over 380 stores across the UK and through its website.

By Harshil Patel. Shoe Zone (LSE:SHOE) reported higher sales over the past year. Its low-cost offering is proving to be popular as customers tighten their belts and face rising costs elsewhere.

It’s a founder-led, well-run business that keeps a tight lid on costs. Much of its future growth could come by expanding its larger store format and from online sales. So far, this strategy seems to be working.

Its double-digit profit margin is stable versus last year, but a drop in shipping costs could push it even higher next year.

I also like its growing dividends and share buybacks. Shoe Zone currently offers a dividend yield of 3%. With £14m of cash on its balance sheet, I’m pleased to note that it’s well funded.

As a shoe retailer, there is competition. And growing stores in an uncertain economic climate could be a challenge over the coming years.

That said, overall, I’d say it’s a resilient, and cash-generative business. It’s making excellent progress and I’d buy the stock for my ISA this December.

Harshil Patel does not own shares in Shoe Zone.

Aquis Exchange 

What it does: a financial services firm operating through three divisions: Aquis Exchange, Aquis Stock Exchange, and Aquis Technologies. 

By G A Chester. Founded and led by a veteran stock exchange technology pioneer, Aquis Exchange (LSE: AQX), is an industry innovator and disruptor. 

Its core Aquis Exchange is a pan-European equities trading platform for institutional investors. It offers a ground-breaking subscription-based pricing model, rather than pay-per-trade. The company also owns Aquis Stock Exchange, a challenger to the London Stock Exchange‘s AIM market. Further revenues come from selling market data and licensing exchange software to third parties. 

Aquis has a current market value of £118m. Revenue for 2022 is expected to be close to £20m (+15%), with pre-tax profit at just over £4m (+25%). Thereafter, annual top-line growth is forecast to accelerate to nearer 20%, with pre-tax profit growth up into the mid-to-high 30s. 

I think the market’s being generous offering me the chance to buy Aquis stock at 21 times forecast 2023 pre-tax profit of £5.65m. Nevertheless, there’s a risk the shares could derate if growth were to undershoot the high level anticipated. 

G A Chester does not own shares in Aquis Exchange. 

Premier Miton Group

What it does: Premier Miton Group is a Surrey-based fund management company

By Paul Summers: Many listed fund managers have seen their share prices collapse as clients have become skittish over the global economy. AIM-listed Premier Miton (LSE: PREM) is no exception. Its value has fallen by more than half in 2022. 

Based on analyst projections, the stock can now be mine for 14 times earnings. That’s not exactly cheap. However, it could turn out to be a bargain when market sentiment inevitably shifts and forecasts are revised. Importantly, Premier has the track record to lure investors back, with 88% of its funds in the first or second quartile of their sectors since inception.

Then there’s the income stream. Although dividends can’t be guaranteed, Premier is down to yield 9.5% in this financial year.

I think this might be a great contrarian play. That said, I would consider waiting until after full-year results are announced early in December before potentially buying the stock.

Paul Summers has no position in Premier Miton Group

Frontier IP 

What it does: Frontier IP provides commercialisation and support services to very early-stage companies in exchange for founding equity stakes. 

By James J. McCombie: Frontier IP (LSE: FIPP) was able to claim its first IPO listing of a portfolio company in its 2022 annual report, which generated £6.5m of cash in share sales. A further £3.4m flowed in after it sold more of the same shares. The hope is that cash flows like this could become a regular occurrence as the 24 companies in Frontier’s portfolio continue developing. And there are some exciting companies in there. One is developing a new family of antibiotics, and another turns landfill fodder into high-quality tiles and tabletops.  

Frontier IP expends time and resources for equity stakes in companies that might have little more than an idea. Although the rewards can be great, many might return nothing, and now the lion’s share of operating income is non-cash. The portfolio approach reduces the risk of any one failure wiping out the company, but this is still a high-risk investment.   

James J. McCombie does not own shares in Frontier IP.

Hotel Chocolat

What it does. Hotel Chocolat is a premium British chocolate retailer. It produces and distributes chocolate and other cocoa-related products.

By John Choong. Shares in Hotel Chocolat (LSE: HOTC) have declined by an eye-watering 70% this year. Its recent exit from the US market hasn’t helped investor sentiment either, as management now expects its FY22 to be loss-making and slower growth pencilled in for FY23.

The good news, however, is that the bad news has already been priced in, and Hotel Chocolat stock may have bottomed. But more importantly, the company can capitalise on a catalyst as the UK enters a recession. The ‘lipstick effect’ — where more affluent customers downgrade purchases to more ‘affordable’ items such as chocolate — could present a boost to sales for the firm.

Having said that, I should point out that upside potential for the stock remains limited according to Berenberg, who rates the stock a ‘hold’ with a price target of £1.55. So, in the coming days, I’ll just be dipping my toes in, and may buy more stock when the retailer’s outlook improves.

John Choong has no position in Hotel Chocolat.

The post Best British small-cap stocks to buy for December appeared first on The Motley Fool UK.

The price dip came after 2021 full-year results. The company is in the marine services business, which has been under pressure. For 2021, Fisher & Sons reported a statutory loss before tax of £29m. But I think that headline figure hides a company with attractive long-term potential.

Covid-19 hit the FTSE sector hard. Chief executive Eoghan O’Lionaird said that “2021 was a challenging and disappointing year for the group. We experienced ongoing disruption from the global pandemic, our markets did not recover at expected rates, and we underestimated the headwinds faced by some of our businesses“.

I do like it when a CEO tells it like it is and doesn’t try to sugar coat bad news with waffly marketing speak.

Better than it seems?

There’s one thing that immediately makes me think things might not be as bad as they seem. The reported loss for 2021 covered a number of one-offs. Excluding those produces an underlying operating profit of £28m.

I know it can be risky relying on underlying figures. FTSE companies report them all the time, and some turn out to be more reliable than others. Who knows what other one-offs might hit the current year?

But it does at least make me think there’s a potentially healthy operating environment here, if Fisher & Sons can get past its rough few years. It just might be a good time to buy right now.

A FTSE recovery stock?

For Fisher to be a good investment for the medium term and beyond, it will first need to survive its short-term crisis. So what does the balance sheet look like? Well, there is significant debt on the books. But it is heading in the right direction.

At the end of 2021, the firm was saddled with £185.6m in net debt. For a FTSE company with a market cap of £195m, that’s a lot. But that figure does include finance leases and right of use liabilities. Actual bank net borrowing comes in at a less painful £139.6m.

And the total figure is £12.5m better than the previous year, which ended with net debt of £198.1m. Bank net borrowings are notably lower than 2020 too, down from £165.6m.

Buy right now?

The difficult question is how to put a valuation on the Fisher share price right now. Thought the results day fall is painful, it’s really only giving up some of the stock’s 2022 recovery. The shares have lost 56% over the past 12 months, while the FTSE All Share is down a modest 3%. But Fisher is still up 35% since a 52-week low in December.

To summarise, I am definitely seeing a risky investment here. Another “challenging and disappointing year” could result in a further share price collapse. But if the company can get back close to pre-slump earnings levels, we could be looking at a price-to-earnings multiple in low single digits.

Does that make it a share to buy right now? It’s definitely on my list for my next investment.

The post 1 FTSE All Share stock (down 20% today) to buy right now appeared first on The Motley Fool UK.

What just happened to the James Fisher share price?

James Fisher is an engineering services firm that specialises in marine-based operations for a variety of sectors including Oil & Gas, Transportation, and Renewable Energy. Looking at the latest earnings report, revenue for the most recent quarter came in 7.6% higher than a year ago. That’s obviously good news. Sadly, the positivity ends there.

Given the James Fisher share price crashed this week, I think it’s fair to say that investors were less than pleased to receive disappointing profit guidance from management. The company’s issued outlook for the full year of 2021 placed operating income between £27m and £32m. This range is firmly below analyst expectations of £35m, and when looking into the cause behind this underwhelming performance, I discovered an onslaught of bad news.

Firstly, its Fendercare ship-to-ship transfer business continues to deliver disappointing results, with more evidence emerging that a market shift is under way. Meanwhile, its JFD subsidiary, a specialist in underwater commercial and defence operations, has reached a stalemate in an ongoing £2m negotiation that is unlikely to be resolved until next year. At the same time, customers of the group’s marine Contracting, Decommissioning, and Nuclear businesses have begun delaying projects due to supply chain disruptions created by the pandemic. And on top of all that, James Fisher is struggling to collect a £2m outstanding debt from one of its customers in financial distress. 

Needless to say, this is all quite problematic. So I’m not surprised to see shareholders jumping ship, causing the James Fisher share price to plummet in the process.

Can it recover?

As troubling as this latest report is, there is some room for some optimism. I think it’s worth remembering that the delays in projects are only temporary. And management expects the missing income will materialise next year. In the meantime, James Fisher’s pursuit into the renewable energy sector as a new growth prospect appears to be paying off. Its subsidiary EDS Group, which provides high-voltage engineering services, just signed several two-year multi-million-pound contracts with industry leaders. And there are still more deals of the same size on the table.

Overall, the long-term potential of this business doesn’t appear to be jeopardised, in my opinion. The group does have a big pile of debt that could create problems if profits don’t eventually recover. But for now, it seems to have sufficient liquidity to meet short-term obligations. And providing that management doesn’t have any more nasty surprises for shareholders, I believe the James Fisher share price can recover over the long term. Therefore, I am considering adding this business to my portfolio.

The post Is the crashing James Fisher share price a buying opportunity? appeared first on The Motley Fool UK.

I have to admit I’m a bit surprised by how bad things have become. This business has been a reliable performer for many years. Since last year’s falls, I’ve been thinking about buying. However, yesterday’s update has made me more cautious. Are these temporary problems, or has this business come off the rails?

Bad luck or bad management?

Yesterday’s profit warning will have been painful reading for shareholders. Problems revealed by the company included delays to projects in the marine contracting, decommissioning, and nuclear businesses. Ship-to-ship transfers and tankship operations are also not performing as well as hoped.

To make matters worse, the company has reached a standstill over £2m due on a long-term project and faces a £2m increase in bad debt risk from another client.

Underlying operating profit for the full year is now expected to be between £27m and £32m, compared to previous broker forecasts of £35m. That’s a big downgrade, in my opinion.

James Fisher says some of these problems are related to disruption caused by the pandemic. Some of them probably are. But in my experience, companies that suddenly reveal a string of unrelated problems are sometimes suffering from bad management.

This market-leading business needs to change

James Fisher is not some fly-by-night business promising profits in the future. The group is a well-established technical services provider that can trace its origins back to 1847. It has been listed on the stock exchange since 1952.

Many of the group’s businesses have market-leading positions in niche sectors, such as ship-to-ship transfers of oil and gas. The company is also well-established in other areas, such as nuclear decommissioning and commercial diving.

However, I’ve been reading through a presentation the group gave to City analysts in June. In among all the management jargon, my impression is that some parts of the business may have become inefficient and less competitive.

Growth may also be a concern. In 2020, James Fisher still generated half its revenue from oil and gas production and transport. Management hopes to replace some of this revenue with new work in renewables and oil and gas decommissioning. But that will require new investment and significant changes to some of the group’s businesses. Making a success of this may not be easy.

James Fisher shares: should I buy?

I haven’t bought any James Fisher shares yet. I want to do some more research into this quite complex business. But my view so far is that the company’s market-leading specialist services are likely to remain valuable and drive future growth.

Right now, I think there’s a good chance the company could deliver another round of bad news before things start to improve. I’m a little concerned about the company’s debt levels, too. For these reasons, I’ll probably wait for the next trading update in January before I decide whether to buy. But I’m definitely interested — and watching closely.

The post The James Fisher (FSJ) share price is down 35%. Should I buy now? appeared first on The Motley Fool UK.

However, some stocks have bucked the trend. They’ve slumped while the broader market has rallied. 

In some cases, I think investors have overacted. With at least three coronavirus vaccines now in the pipeline, I believe the economy is set to roar back to life in 2021. As such, I’d use recent declines to snap up these investments while they’re trading at low levels.

UK shares on offer 

The first company that’s appeared on my radar recently is magazine publisher Future (LSE: FUTR). Over the past few years, this organisation has developed a winning strategy in the magazine business. It’s been buying up numerous smaller publishers and then using its size to get costs down. 

The firm has also been able to make the most of its internet real estate. Its specialist publications provide advertisers with niche audiences. In the ‘Wild West’ online advertising market, this gives the business an edge. Advertisers have been willing to pay a premium to get exposure to Future’s customers online. This initiative has pushed profits higher, making the group one of the best performing UK shares of recent years. 

Management’s latest acquisition target is the comparison website Gocompare’s owner, GoCo Plc. The stock dropped on the news of the announcement, but considering Future’s track record of integrating acquisitions, I think this could be an excellent opportunity to buy this growth stock at a discount price. 

If management can replicate the success the business has achieved in the past with previous acquisitions, I reckon Future can achieve large total returns for investors in the medium term. 

Service company 

Another one of the cheap UK shares that I’m currently eyeing up is James Fisher And Sons (LSE: FSJ). This business, which provides a range of services to the marine sector, has fallen out of favour with investors in 2020. It’s easy to understand why. Profits are expected to slump by 51% this year. 

Nevertheless, it appears to me that much of this decline is already reflected in James Fisher’s share price. Since the beginning of 2020, the value of the company has declined by more than 50%. 

Analysts are forecasting a rapid recovery in earnings next year. Growth of nearly 50% has been pencilled in for 2021. On this basis, it looks to me as if the market is focusing too much on the negative short-term new flow and not on James Fisher’s long term potential, which is the case with many other UK shares. 

Therefore, I believe now could be an excellent time to add the stock to my portfolio. As the economy begins to recover in 2021, and the group’s earnings rebound, I reckon it’s likely the market will re-evaluate James Fisher’s prospects.

In my opinion, this combination of earnings growth and improved investor sentiment could help the stock outperform other UK shares. 

The post These UK shares have plunged 20% in a month! Here’s why I’d buy appeared first on The Motley Fool UK.

In 2018 alone, the business — which provides a variety of engineering services to the marine, oil and gas sectors — raised the annual payout 10% year-on-year to 31.6p per share. And City analysts expect it to boom to 35.2p this time around, supported by predictions of a 5% profits rise. I’m not tempted for even a second to buy shares in James Fisher, though, given the prospect of tough trading conditions that threaten further dividend growth in 2020 and beyond.

The engineer declared in recent days that pre-tax profits of £56.1m are likely this year, missing its previous expectations due to troubles at its Marine Support division. Conditions may have been better at its Offshore Oil and Tankships divisions of late, though the possibility of severe oil price weakness in 2020 (and possibly beyond) is a big worry for me. And with James Fisher dealing on an elevated forward P/E ratio of 20.3 times, some significant share price falls could be just around the corner.

Property star

I’d much rather use my hard-earned investment cash to buy shares in Springfield Properties (LSE: SPR). Like James Fisher, this stock also has a history of lifting dividends at a spectacular rate, but in this case, share pickers can also enjoy market-beating yields. And more importantly, trading conditions remain robust enough to suggest that payouts should keep shooting skywards beyond the immediate term.

In the last fiscal year (to May 2019) the Scottish housebuilder, supported by a 69% year-on-year improvement in adjusted pre-tax profits (to £16.5m), decided to raise the annual dividend an astonishing 19% to 4.4p per share.

And it’s no surprise that, with the number crunchers predicting a 9% earnings rise in the current financial period, another meaty payout increase is being tipped. A 5.4p per share reward is currently expected, a reading that yields a mighty 4.6%.

A brilliant ISA buy

The wider housing market might be suffering the impact of Brexit fatigue, though thankfully the strength of first-time-buyer demand continues to boost the new-build providers like Springfield. According to UK Finance, there were 8,810 new first-time-buyer mortgages completed north of the border in the third quarter, up 1.6% year on year.

And this particular housing giant is ramping up build rates to fully capitalise on this favourable trading environment. Last year it built 952 new homes, up 24% from 2017 levels. At current prices, Springfield trades on a forward P/E ratio of 7.7 times, one which sits inside the widely-regarded bargain region of 10 times and below. Combined with that huge dividend yield, I reckon the business, unlike James Fisher, is a top ISA buy today.

The post ISA investors! Should you buy or avoid these dividend stocks before 2020? appeared first on The Motley Fool UK.

But if we ignore growth, we could be missing out on companies like James Fisher & Sons (LSE: FSJ).

So far in 2018, shares in the marine services engineer have gained 13% while the FTSE 250 has lost 15%. And over the past five years, James Fisher shares have gained 37% — the mid-cap index has aded 11% in that time, while the FTSE 100 has been almost precisely flat.

There have been dividends on top of that, though yields are modest at a little under 2% as we might expect from a growth stock. Still, they’ve brought the total five-year return to more that 45%, which is exceptional in the current climate.

Submarine

On Wednesday the company announced a new contract worth £30m. Under the deal with Daewoo Shipbuilding & Marine Engineering, the firm will design and build a deep search and rescue vehicle for the Korean navy, with delivery expected by 2021. Training and in-service support are part of the agreement.

Chief executive Nick Henry said the contract “further demonstrates our position of market leadership in the submarine rescue market,” and that seems to me like a niche with significant barriers to entry for would-be competitors.

James Fisher shares are not on a screaming bargain valuation, with forward P/E multiples of around 20. But if the firm can maintain its long record of annual earnings growth, currently forecast at 5% per year this year and next, I can see it as a very good company at a fair valuation.

And though its dividends are modest right now, they’re strongly progressive and are growing at around 10% per year — and that could make it a cash cow in years to come.

Aerospace

Though it hasn’t enjoyed the same recent growth record, BAE Systems (LSE: BA) actually hasn’t been performing too shabbily. Earnings per share have remained pretty much flat over the past few years, but I see that as a sign that BAE has a defensive nature to its business and I think it’s a decent record in the current global economic climate.

By midsummer, BAE shares had been outperforming the FTSE 100 in 2018 with a decent gain. But since then, the price has slumped and now lags the FTSE with a 20% year-to-date drop (against 11.5% for the index).

That’s almost certainly down to fears caused by the increasingly pear-like shape of our Brexit negotiations, as tie-ups with European defence and aerospace firms could be under threat. But BAE sells most of its products to the Middle East, the US and the UK, and that makes me think Brexit fears are overdone.

Undervalued

The share price slump has dropped the valuation of the shares as low as a P/E of 10, and has pushed predicted dividend yields up to 5%.

The only thing that concerns me a little is net debt rising to £1.9bn at the interim stage at 30 June. But that’s still only around 10% higher than annualised EBITDA and well within what I see as a comfort zone. The intermittent nature of contract payments means I might wait for full-year results in February, but right now I think I’m looking at a strong buy.

The post A FTSE 250 stock I think should beat the BAE share price in 2019 appeared first on The Motley Fool UK.

There’s more to come

When oil prices crashed in 2014, big producers launched urgent cost-cutting drives. The results have been impressive. For example, Shell now expects to be able to generate free cash flow of $25bn-$35bn per year at an oil price of $60 per barrel.

With Brent Crude now trading at about $76 per barrel, profits are soaring. The Anglo-Dutch group’s half-year adjusted earnings rose by 36% to $10.3bn this year.

Shell’s share price has now doubled since the start of 2016. But rising profits mean that the stock still looks reasonably priced to me, on 12 times 2018 forecast earnings and with an expected yield of 5.6%.

Looking ahead, earnings per share are expected to rise by 14% in 2019, giving a forecast P/E of just 10.5.

My view is that we’re still in the early stages of the next oil market upcycle. Even if oil prices weaken again, I see very little risk that Shell will need to cut its dividend. The firm held its payout unchanged through the recent oil price crash and is now operating with much lower costs.

I’d rate Shell stock as an income buy.

A growth opportunity

At some point, I suspect the ‘g’ word — growth — will start to appear in oil executives’ forecasts. When this happens, rapid profit growth could be slowed by rising spending, as firms invest in the next generation of oil and gas fields.

This will be the opportunity that oil services companies are waiting for. Customers such as Shell put these firms under huge pressure to reduce their rates during the downturn. In most cases, profits have not yet recovered.

One example is marine services group James Fisher & Sons (LSE: FSJ). During the first half of 2014, revenue rose by 20% in Fisher’s Offshore Oil division. Underlying operating profit climbed 32% to £11.9m.

According to figures published today, the same operations generated an underlying profit of just £1.2m during the first half of 2018. Revenue rose by just 1% during the period.

It’s clear that this group hasn’t yet seen much of a recovery in Offshore Oil. Fortunately this is only part of a much larger business, which includes shipping, offshore wind farm support and other specialist marine services.

An under-the-radar buy?

Today’s half-year results showed that James Fisher & Sons’ underlying operating profit rose by 18% to £24.5m during the six months to 30 June. Group revenue was 12% higher, at £260.5m.

When profits rise more quickly than revenue, we know that margins are improving. In this case, underlying operating margin rose from 8.9% to 9.4%. My calculations show that the group’s return on capital employed, another measure of profitability, has risen from 11.5% to 12.2% over the last six months.

I’m encouraged by this progress and attracted to the group’s broadening mix of customers.

Trading on a forecast price/earnings multiple of 20, the shares look fully priced at the moment. But in my view this could still be a good long-term dividend growth buy, with the aim of topping up on any market dips.

The post Why this FTSE 250 dividend stock could rise faster than the Shell share price appeared first on The Motley Fool UK.

With that in mind, here are two FTSE 250 shares which appear to offer narrow margins of safety. While they may be able to offer strong dividend growth potential due to improving financial outlooks, their investment appeal seems to be lacking.

Positive outlook

Reporting on Thursday was services provider to the marine, oil & gas, and nuclear industries James Fisher (LSE: FSJ). The company’s trading in the current financial year has been in line with expectations. Its Marine Support, Specialist Technical and Tankships segments have traded well, with signs of recovery being shown in Offshore Oil. Contract wins have been relatively high in the first four months of the year, and the business remains confident regarding its outlook for the full year.

Looking ahead, the company is expected to report a rise in its bottom line of 6% in the current year, followed by further growth of 3% next year. As such, its growth outlook is relatively modest and yet it trades on a high rating. For example, it has a price-to-earnings growth (PEG) ratio of 3.8, which suggests that it could be overvalued at the present time.

Certainly, James Fisher is expected to raise dividends per share by 20% over the next two years. However, with its dividend yield being around 2% and it lacking a wide margin of safety, it appears to be a stock to avoid at the present time.

Mixed future

Also seemingly overpriced is price comparison website operator Moneysupermarket (LSE: MONY). The company has an excellent track record of growth, with it increasing its bottom line in each of the last five years. During that time its earnings have risen at an annualised rate of over 13%, which suggests that it has been able to find a sound strategy.

However, the prospects for the business appear to be somewhat less impressive. In the current year it is due to report a fall in earnings of 1%, followed by a return to growth of 8%. While the latter figure may be relatively appealing, the company’s valuation suggests that investors may be anticipating a higher figure. It trades on a PEG ratio of 2.2, which indicates that it may lack upside potential.

While Moneysupermarket is expected to record a rise in dividends per share of 11% over the next two years and has a dividend yield of 3.5%, its valuation makes it relatively unattractive. While the FTSE 250 may be trading at a high level versus its historic performance, there could be stronger investment opportunities available elsewhere within the index.

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