The company? Spirent Communications (LSE:SPT).

Spirent is a British multinational telecommunications testing firm based in Crawley, West Sussex. The company provides automated testing and assurance for networks and security systems with an aim to reduce downtime and business interruptions. It recently began adopting artificial intelligence (AI) to streamline and optimise its solutions.

The UK’s struggling tech sector 

High interest rates and inflationary pressures have resulted in reduced spending on technology in the UK. Spirent has been struggling for several years, with its share price experiencing some large falls in 2023. The worst was in the first week of October when it lost over 33% in the space of a few days. 

In that week it hit a low of 79p – a huge drop from its all-time high of 310p in September 2021. The lower valuation meant it began attracting interest from US companies looking to acquire UK businesses.

But it’s just one of many UK tech firms that have been approached by US companies recently. The struggling UK economy is making it difficult for businesses to flourish, forcing many to sell out to US rivals. But not all are succumbing. Last month, major electricals retailer Currys turned down a bid from US hedge fund Elliott, despite the offer rising from 47p to 67p per share.

The American connection

The reason for last month’s sudden price increase was a £1bn takeover bid from US telecoms firm Viavi Solutions. On 5 March, Spirent accepted the offer from the Arizona-based firm, causing a single-day price jump of 60%. Then, on 28 March, it rose a further 20% after fellow US tech firm, Keysight Technologies (NYSE:KEYS), outbid Viavi with a £1.16bn offer.

With the acquisition now confirmed, Spirent will be delisted from the London Stock Exchange (LSE) and become a subsidiary of Keysight. Shareholders will be entitled to a special dividend of 2.5p per share in addition to any final dividend for the year ending 31 December 2023. 

Keysight is a $28bn tech firm listed on the New York Stock Exchange (NYSE). It develops technological optimisation solutions for governments and enterprises with a focus on the aerospace and defence industry. Over the past 10 years, its equity has risen steadily to £4.81bn. During that time, debt has remained relatively stable at around $1.8bn, cutting its debt-to-equity ratio in half. With $9bn in assets and $4.2bn in liabilities, it has a clean balance sheet.

But the recent growth has pushed up its share price. It now has a price-to-earnings (P/E) ratio of 28.2 – considerably higher than the industry average of 19.1. So the shares could be a bit overvalued and might struggle to make significant gains from here. Forecasters predict very little growth (4.8% on average) over the next 12 months.

Keysight is now one more of a growing list of US companies tapping into the UK market. Since local investors seem disinterested in firms valued under £1bn, we’ll likely see more US acquisitions of FTSE 250 companies. 

Whether or not this will be good for the local economy remains to be seen.

The post Why did this AI-related FTSE 250 stock soar 81% in March? appeared first on The Motley Fool UK.

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Compass Group

What it does: Compass is a global food services group that offers dining solutions to a range of organisations across the world.

By Harshil Patel. Compass Group (LSE:CPG) is a world-class business and a specialist in its field.

The pandemic was a challenging period for a company that benefits from workers heading to offices.

But three years on, it’s in a much better place. Pre-tax profits grew 31% in the six months to March. And the outlook looks encouraging.

Post-pandemic, more organisations are outsourcing their catering. That could be due to challenges relating to inflation and greater health-related rules, both of which has made in-house catering less attractive.

Compass can provide a lower cost alternative that can manage complex requirements in a post-Covid world.

It should also benefit from long-term structural trends that include population growth and more people working in cities around the world.

In contrast with the USA, bear in mind that food inflation is still rising in Europe and UK. These regions comprise of 23% of its sales. And these higher food costs could put pressure on profit margins.

Overall, though, I’d consider it a long-term winner.

Harshil Patel does not own shares in Compass Group.

Forterra

What it does: Forterra is a brick manufacturer. Its products include the London Brick used in 25% of UK housing stock.

By Stephen Wright. Top of my list of shares to buy is Forterra (LSE:FORT). The UK brick manufacturer has had a bumpy time in June, but I think this could be a great opportunity with the share price down.

There’s an obvious risk of a dividend cut, with higher rates weighing on demand in the housing market. But I think the company’s prospects are better than its price implies.

I think higher rates might also weigh on the supply side of the market. The prospect of getting a low price and facing higher repayments might deter owners from selling. 

If that happens, it should help offset the imbalance between supply and demand. This would leave room for new build houses – and the manufacturers that supply them.

I’m therefore optimistic that the outlook for Forterra might not be as bad as its share price implies. That’s why it’s my top UK stock to buy.

Stephen Wright owns shares in Forterra.

Spirent Communications

What it does: Spirent Communications provides automated test and assurance solutions for next-generation devices and networks.

By Kevin Godbold. Spirent Communications (LSE:SPT) has developed a great business over the years. There’s a strong multi-year record of steadily rising revenue, earnings, cash flow and shareholder dividends. And the quality indicators are top-notch.

But quality has been trashed in these markets along with much else. And I now believe Spirent shares have an attractive valuation for investors seeking a long-term buy-and-hold.

With the share price in the ballpark of 170p, the forward-looking earnings multiple is around 12 for 2024. And the anticipated dividend yield is just over 3.6%.

Those figures look attractive to me. But one risk is that earnings growth has recently stalled. And if it doesn’t get back into gear in the coming years, the valuation may contract further.

In the first-quarter update, the company spoke of ongoing customer order delays but said the situation is industry-wide. And the directors think customer momentum will pick up later in the year.

Kevin Godbold does not own shares in Spirent.

The post Best British shares to buy in July appeared first on The Motley Fool UK.

I’ll start with a word of warning. These unloved companies are sometimes cheap for a good reason. But I’ve often found good buying opportunities by looking for underperforming companies facing manageable short-term problems. Here are three shares I’d buy today.

Long-term growth opportunity

My first pick is Spirent Communications (LSE: SPT). This tech firm specialises in producing equipment used by network operators for testing and service assurance. Customers include mobile network operators and big data centres operators such as Amazon Web Services.

Spirent’s share price hit the buffers in January, when the company warned that some customers had delayed purchase decisions. Although there had been no cancellations, some profit was expected to be pushed back into the second half of 2023.

When profits are unexpectedly weighted to the second half of the year, it’s sometimes a warning of problems to come. Initial delays could become cancellations, hitting profits.

However, on a medium-term view, I think that ever-larger and more complex networks are likely to support Spirent’s continued growth.

The stock’s forecast price-to-earnings ratio of 15 doesn’t seem expensive to me, given the company’s high profit margins and debt-free balance sheet. I see Spirent as a long-term buy.

A buy-and-forget stock?

Consumer goods firm PZ Cussons (LSE: PZC) owns brands such as Carex, Imperial Leather, and St Tropez. This 139-year-old group remains under family control and is also a member of my own share portfolio.

PZ Cussons’ share price slumped recently after the company warned of continuing cost pressures and a higher expected tax charge this year. However, the group’s pre-tax profit guidance for the year is unchanged. On balance, I don’t see too much to be concerned about here.

The main risk I can see is that CEO Jonathan Myers’ efforts to kickstart growth in this business will be unsuccessful. Although performance has improved since Myers took charge, profits are still lower than they were 10 years ago.

Personally, I’m encouraged by the changes Myers has made so far. There are no guarantees, but I see this as a fairly low-risk investment at current levels.

A strong recovery

Irish firm C&C Group (LSE: CCR) owns the Bulmers, Magners, and Tennent’s cider and beer brands, as well as a number of other smaller labels. C&C is also a distributor in the UK, supplying the trade with a wide range of drinks.

The company had a tough pandemic, as pub closures hit the trade hard. But this business seems to be recovering quite well. Revenue was up by 20% during the key month of December compared to the previous year. Operating profit for the year to 28 February is now expected to be close to 2019 levels.

C&C’s debt has now fallen back to more comfortable levels and City analysts expect the firm to restart dividend payments this year. Although there’s a risk that pub sales could weaken during a recession, I think the shares look reasonably valued on 11 times forecast earnings.

As with PZ Cussons, I see C&C as buy-and-hold stock that could deliver attractive returns from current levels.

The post 3 FTSE 250 shares at 52-week lows to buy now appeared first on The Motley Fool UK.

[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]

Harbour Energy

What it does: Harbour is a North Sea energy firm that’s the UK’s largest oil and gas producer, which also has operations in Mexico and Indonesia.

By Roland Head. The outlook for Harbour Energy (LSE: HBR) has been transformed by this year’s oil and gas boom.

Production rose by 27% to 207,000 barrels of oil equivalent per day during the nine months to 30 September. Operating costs have stayed low, at just $14 per barrel.

As a result, the firm is expected to report a record profit of around $1.4bn this year, on sales of $5.4bn. By the end of 2023, management expect to have completely repaid the group’s net debt of $1.1bn.

The risk is that oil is a boom-and-bust industry. High prices probably won’t last forever. Some of the firm’s oil and gas fields are also getting old. They’ll eventually need decommissioning.

These factors probably explain why Harbour’s share price has fallen by 40% since April. But the shares are now trading on just 2.7 times forecast earnings, with a 6% yield. I think that’s too cheap.

Roland Head does not own shares in Harbour Energy.

InterContinental Hotels Group

What it does: IHG is a global hotel chain. Its brands include Holiday Inn, Iberostar, and Six Senses.

By Stephen Wright. InterContinental Hotels Group (LSE: IHG) is a business that ticks a lot of boxes for me. Warren Buffett says that the best businesses are ones that can grow without needing capital to grow and I think that this company fits the bill. 

Most of InterContinental’s hotels are run on a franchise basis. That means that the company doesn’t own the physical buildings itself, but takes a fee from the owner, who runs the hotel as part of the IHG network.

As a result, the company has extremely low growth and maintenance costs. The running costs of its hotels are left to operators and it doesn’t have to pay to add new hotels to its network (it gets paid by the franchisee instead).

This makes for some impressive financial metrics. IHG generates just over £770m in operating income using only £410m in fixed assets and around 75% of that income becomes free cash.

Stephen Wright does not own shares in InterContinental Hotels Group.

Big Yellow Group

What it does: FTSE 250 member Big Yellow Group provides secure and modern self-storage for homes and businesses. 

By Paul Summers. This year has been pretty awful for most listed companies and self-storage provider Big Yellow Group (LSE: BYG) is no exception. As I type, the share price is down by 35%.  

This doesn’t come as much of a surprise. Statutory pre-tax profit in the first half of its financial year plummeted to £6.8m from almost £255m in 2021. 

On a positive note, the real estate investment trust has stated that it is seeing a correction in land prices. Unless we’re about to become a nation of minimalists, this bodes well for future growth. The interim dividend was also raised, leaving the stock with a forecast yield of 3.9%. 

It may operate in a competitive space but I reckon Big Yellow has both the brand and financial stability to take the battle to rivals. 

Paul Summers has no position in Big Yellow Group.

YouGov

What it does: YouGov is a global public opinion company specialising in market research and data analytics.

By Ben McPoland. The mission at YouGov (LSE: YOU) is to become the world’s leading provider of marketing and public opinion data. And it has been making great progress in that regard.

Both its revenue and operating profit have more than doubled over the last five years. In its 2022 full-year results (year ended 31st July), all three of its divisions recorded double-digit growth on an underlying basis.

YouGov is now truly global, with operations across Europe, North America, the Middle East, and Asia. Its product – reliable and trustworthy opinion data – is highly valued by companies, governments and organisations. I don’t expect that to change any time soon.

One consideration is that YouGov shares are trading at 30 times forward earnings. That isn’t cheap, even after the stock’s 33% pullback this year.

However, profits are expected to grow rapidly over the next few years. January might be an opportune time for me to buy some shares.

Ben McPoland owns shares in YouGov.

Spirent Communications 

What it does: Spirent tests, troubleshoots and offers automation solutions for its customers’ devices, networks, services, and security solutions. 

By James J. McCombie. Over the last five years, Spirent (LSE: SPT) has grown its revenues by 5.9% each year on average. Maybe that’s not awe-inspiring, but the company’s operational improvements in that time are impressive. Operating margins have expanded to 18.2%, and normalised earnings per share have doubled from 7.8p to 15.8p. 

With its customers moving to the cloud and 5G and exploring the internet of things, providing for remote working, Spirent’s services should remain in demand. It spends a hefty  22% of its revenues on research and development to keep up with the intricacies of serving that demand. 

Spirent has a dividend yield of 2.13%, and payouts have been growing at 12.6% on average over the last half-decade. Dividend cover is forecasted to remain above 2.2 for the next few years suggesting safety. But, with a P/E ratio of 18.7, this stock is a little expensive compared to the industry and wider market averages.    

James J. McCombie does not own shares in Spirent Communications 

Greggs

What it does: Greggs is one of the UK’s largest bakery chains providing fresh and popular on-the-go food to consumers nationwide.

By Zaven Boyrazian. While buying shares in a glorified bakery may not seem like prudent investing, Greggs (LSE:GRG) continues to defy expectations. It turns out that selling pastries and sausage rolls can be immensely profitable! And even with consumer spending dropping off a cliff lately, the firm is still delivering double-digit sales growth.

With over 2,200 stores scattered across the country, Greggs continues to expand its operations while maintaining its vertically integrated structure. Beyond ensuring supply chains remain undisrupted, it provides complete control over production. This enables management to rapidly introduce new products and adapt to ever-changing consumer tastes and diets.

Its resilience to wobbly economic conditions is a testament to the brand’s popularity among consumers. Yet if things worsen, households may start cutting back on their excursions to the bakery chain. That would obviously be bad news for the business. Nevertheless, its proven track record of success makes me bullish for the long-term future.

Zaven Boyrazian does not own shares in Greggs.

Ibstock 

What it does: Ibstock manufactures construction products from 36 factories and is the UK’s biggest brick supplier by volume. 

By Royston Wild. The share prices of Britain’s listed brick manufacturers have collapsed as worries over the housing market have grown. FTSE 250 operator Ibstock (LSE: IBST) has lost a quarter of its value since the start of 2022.

I think this decline represents a great dip-buying opportunity. Especially as trading news from the sector continues to impress. 

Ibstock traded ahead of expectations between July and September, it announced in mid-October. It said that this was thanks to “robust demand patterns and strong operational performance.” 

Then in late November Brickability Group announced like-for-like growth of 9.3% between April and September.  It said that it had enjoyed “continued strong order intake” at the start of the second half, too.

A sharp slowdown in the housing market is a risk to Ibstock and its peers. But a rock-solid repair, maintenance and improvement (RMI) market means that sales keep impressing.

Today Ibstock trades on a P/E ratio of 9.8 times for 2023. I think this represents excellent value. 

Royston Wild owns shares in Ibstock.

Lloyds Banking Group

What it does: Lloyds is a high-street bank, and the UK’s biggest mortgage lender.

By Alan Oscroft. It’s a stock I’ve held for years, through ups and downs (mostly downs). But even through the tough times, it’s paid me decent dividends, most years.

I’m talking of Lloyds Banking Group (LSE: LLOY).

Would I be mad to buy a bank stock in a recession? And a mortgage lender when the property market is slowing? Maybe.

But right now, I see one simple reason to buy Lloyds shares in January. I reckon panicking investors have pushed the valuation too low.

We’re looking at P/E multiples of under seven, which is around half the long-term FTSE 100 average. And dividend yields are above 5%, heading close to 6.5% on 2024 forecasts.

The risks are real, and I know I could be in for a bumpy ride as we weather the economic storms.

But does anybody really think that banks won’t generate big profits over the long term? Or that the UK’s chronic housing shortage has ended?

Alan Oscroft owns shares in Lloyds Banking Group.

Victrex

What it does: Victrex manufactures a range of polymers for use in industries such as automotive and aviation.

By Christopher Ruane. I can now buy shares in Victrex (LSE: VCT) for a third cheaper than I could have done at the start of the year. That reflects some of the risks the company faces, such as higher energy costs eating into profit margins. Last year, gross margin fell from 54% to 51.2%.

Longer term, though, I think Victrex’s business model is compelling. Its technology is used in mission-critical applications, meaning customers are willing to pay for quality. Patents on some of the firm’s polymer technology give Victrex a unique competitive advantage.

Last year saw sales volumes grow 8% and revenues rise 11%. Profit before tax fell 5% but still came in at £88m. Despite smaller profits overall, earnings per share rose 4%, The business is highly cash generative and yields 3.7%.

As a long-term investor, Victrex offers me the sort of solid business prospects I like — at a price I find attractive.

Christopher Ruane owns shares in Victrex.

Fresnillo

What it does: Fresnillo is the world’s largest primary silver producer and one of Mexico’s largest gold producers.

By Andrew Mackie. The last couple of years have been very frustrating for precious metals investors. However, clear signs are emerging that the industry might well have bottomed. Last month, silver had its best November performance in its history, as its price rose 16%. Unsurprisingly, the Fresnillo (LSE: FRES) share price reacted positively to such a move and is up 25% in six weeks.

I am of the firm belief that we are still very much in the early innings of a bull market for precious metals. What I really like about silver is that it is not only a monetary metal but its integral role in the green revolution.

Silver is a key component for many green technologies including renewable power, off-grid energy storage, and electric vehicle charging stations. In the years ahead, I envisage a world of elevated demand and tight supply. Consequently, I believe its share price is extremely cheap even after its recent rebound.

Andrew Mackie owns shares in Fresnillo.

Scottish Mortgage Investment Trust  

What it does: Scottish Mortgage is a global trust that has over 100 companies in its portfolio, including unlisted businesses such as SpaceX.  

By Charlie Keough. Shares in Scottish Mortgage (LSE: SMT) have far from impressed this year, down around 40% in 2022. But despite this, I think January could be a great time for me to snap up the trust. 

What I most like about Scottish Mortgage is the diversity it offers my portfolio. As a retail investor, gaining access to a variety of companies under one investment is perfect for me. And with cheap ongoing prices of 0.32%, this makes Scottish Mortgage further attractive.  

The stock has struggled this year due to its heavy focus on growth stocks, such as Tesla. And with racing inflation, investors tend to veer away from these riskier investments. Yet, over the long run, I think its exposure to growth stocks places the trust in good stead for its share price to soar. After all, Scottish Mortgage did buy Tesla back in 2013 for $6 a share! 

Rising inflation alongside its exposure to China could see it suffer in the near future. But as a long-term buy, I’d happily snap up Scottish Mortgage shares.  

Charlie Keough has no position in any of the shares mentioned.  

Diageo

What it does: Diageo is a multinational alcoholic beverage conglomerate. It’s one of the world’s largest distillers.

By John Choong. A recession may be looming in the UK, but this hasn’t stopped consumers from drinking. As such, I think shares in Diageo (LSE:DGE) could be a great value stock to buy for my portfolio.

The current cost-of-living crisis presents a headwind for many retailers, but Diageo expects its spirits to continue flying off the shelf. CEO Ivan Menezes forecasts consistent sales growth of 5% to 7% through to FY25, with operating profit growth of 6% to 9%. Although these numbers aren’t stellar by any means, it should protect my portfolio from downside risks during a recession.

After all, the likes of Barclays, JP Morgan, and Credit Suisse have an ‘overweight’ rating for the stock with an average price target of £47.76. That being said, its high level of debt (£16.30bn) to cash (£2.42bn) is something I’m looking into, as future repayments may hinder the company’s ability to grow its bottom line and return more value to shareholders.

John Choong has no position in Diageo, Barclays, JP Morgan or Credit Suisse.

The post Best British shares to buy in January appeared first on The Motley Fool UK.

These are organisations with a substantial competitive advantage and a track record of developing their advantage further. Indeed, in the past, I have watched many companies lose their competitive advantages due to a lack of investment, poor customer service, and terrible acquisitions. If I can, I want to try and avoid such businesses. 

Of course, there is never going to be a strategy that will guarantee success. However, by focusing on these businesses, I can try to swing the odds of success in my favour. 

UK stocks to buy

A great example of a business I would buy today is Ferrexpo (LSE: FXPO). This company’s competitive advantage is its cost of production.

In the first half of the year, the miner produced a tonne of iron ore for $46.60. This compared to the average sale price of around $200 for the period.

In recent years, the group has been investing to increase output of its high-grade ore. This has helped it maintain an advantage in a market swamped by low-cost, low quality ore. 

The mining company also has a track record of returning significant amounts of cash to investors. The stock currently supports a dividend yield of 4.4%. 

Still, despite its competitive advantages, this company might not be suitable for all investors. Commodity prices are highly volatile, and Ferrexpo is controlled by a few key shareholders, which is not the best corporate governance practice. 

Despite these challenges, I would buy the stock today. 

Market leaders

Spirent Communications (LSE: SPT) and IG Group (LSE: IGG) are two other stocks I’d buy. 

Spirent is a leading producer of automated test and assurance solutions for the telecommunications industry.

As the world becomes more digital, the demand for telecommunications services is expanding. And so is the need for Spirent’s services. Revenues jumped 9% in the six months to the end of June. The firm’s order intake rose 14%. These figures have convinced me that I should add the stock to my portfolio. 

Management is reinvesting profits back into the business. It recently acquired octoScope Inc, making Spirent the firm leader for Wi-Fi tests in a growing market.

The company may have become a leader in the Wi-Fi testing market, but this is a viciously competitive industry. The group’s biggest challenge is always going to be competition. Spirent has maintained its competitive advantage so far. This may not last if the company does not keep investing. 

The same is true of IG. The financial services provider operates in a competitive market. The market is also highly regulated, which comes with additional costs and challenges. Regulators can and have banned the firm’s products. 

Despite these risks, I would buy IG for my portfolio. The company has grown to become one of the largest providers of contracts for difference (CFDs) and spread betting in the UK, and it is also expanding around the world. Recent acquisitions have expanded the group’s footprint, especially in the United States, the world’s largest listed derivatives market.

As the company continues to grow, more acquisitions seem likely. These will only reinforce IG’s competitive advantage and growth potential. This is why it sits on my list of the best stocks to buy. 

The post The best UK stocks to buy appeared first on The Motley Fool UK.

One is Hammerson (LSE: HMSO). And yes, it’s a shopping centre landlord, at a time when the retail sector is only just trying to pick up from its lockdown bruising. The company’s first-half results showed slowing recovery, and the market reacted negatively. The shares lost a couple of a percent in early trading, and are down 63% over two years.

Footfall is still down on pre-pandemic levels, which does not surprise me. And we’re not seeing profit yet, with an IFRS loss of £376m (down from 2020’s £1.1bn). But net debt was cut 16% to £1.9bn, and there’s still £1.5bn in undrawn committed facilities and cash. Hammerson says there is “No significant unsecured refinancing required until 2025.”

There is undoubtedly risk here, as the shape of the retail landscape in the emerging post-pandemic economy is far from certain. But there’s enough safety margin for me. Hammerson is one of my FTSE 250 investment candidates.

FTSE 250 growth stock

Synthomer (LSE: SYNT) is my second pick. The polymer chemicals specialist has seen its shares climb 80% over the past two years. But the wheels did come off an earlier bull phase, as so often happens with early stage growth stocks.

In the half year to 30 June, Synthomer saw underlying revenue climb by 73.7% (with a statutory 67.6% increase). And at the bottom line, EBITDA more than trebled from 2020’s figure to £322.7m. EPS came in at 49.3p, from 10.8p a year ago.

What’s the downside? Well, we could be looking at unusually good growth results as demand catches up from last year’s slump. And we could possibly see some some economic headwinds in the coming years. 

But as far as FTSE 250 growth stock prospects go, I think I’m looking at an attractively valued one here. Oh, and there’s a dividend too — upped at the interim from 3p to 8.7p per share.

5G profits

My final pick is Spirent Communications (LSE: SPT), whose interim figures pleased the market. Spirent develops telecommunications equipment, specialising in 5G stuff. So it’s in a growing market, and I see it as something of a ‘picks and shovels’ investment. When there’s a gold rush, those selling the tools can do well whoever strikes the motherlode.

In H1, order intake gained 14%, with revenue up 9%. Adjusted EPS improved by 9%, and Spirent lifted its interim dividend by 10% to 2.39p per share. I like the company, but do I like its growth valuation?

Spirent shares have wobbled a bit in 2021. But over five years, they’ve almost trebled in value. Annualising first-half earnings, we’d be looking at a P/E of close to 21 on an adjusted basis. On reported earnings, it would be closer to 27. So the risk is that the shares are fully valued now, or even over-valued. And it’s a competitive business too.

But on balance, I don’t find that valuation too stretching. Spirent is on my FTSE 250 watchlist.

The post 3 FTSE 250 stocks to buy in August appeared first on The Motley Fool UK.

Here are three companies I would buy for my portfolio today. 

FTSE 250 homebuilder 

The first company on my list is homebuilder Bellway (LSE: BWY).

The UK housebuilding sector is currently benefiting from significant tailwinds, and Bellway is capitalising on this growth. According to its interim results, the group produced a record 5,656 properties in its fiscal first half. Due to this record output and higher selling prices, revenue increased 11.6% year-on-year for the period. 

I think low interest rates, easy credit and high demand for new properties will lead to continued growth for Bellway. That’s why I would buy this FTSE 250 company. 

Some risks the business faces include higher costs. These are already having an impact. The group’s gross profit margin declined from 23.1% to 20.8% in its fiscal first quarter. If this trend continues, profits may come under further pressure. 

Growth stocks

Another company I would add to my FTSE 250 growth stocks portfolio is Clarkson (LSE: CKN).

I think this company, which is the world’s leading provider of integrated services and investment banking capabilities to the global shipping market, should register growing profits as economic growth returns.  

Indeed, thanks to rising shipping rates worldwide, a sign of high demand and reduced supply, the business has made an “encouraging start” to the year. Management believes activity will continue to increase throughout the year and is expecting a significant improvement in the second half. 

I would buy Clarkson as a growth play, but I also plan to keep in mind the company’s weaknesses. A sudden downturn in economic activity could send shipping rates plunging, which may lead to losses. Sectors such as shipping are usually the first to feel the pain in an economic slump. 

Booming 5G market

The pandemic has really accelerated the need for efficient communication technology worldwide, which could drive increased demand for 5G connectivity. One company that may benefit from this is Spirent Communications (LSE: SPT). 

Spirent produces and develops equipment for use in telecommunications networks. It is a specialist in 5G equipment and has reported growing interest in its capabilities recently. 

In the company’s latest trading update, management reported that the business “continues to win in 5G with the development of 5G technology and networks.” It booked 180 5G deals in the first quarter with more than 80 customers. 

Still, while Spirent might appear to be firing on all cylinders today, the technology sector is incredibly competitive. As a result, the company will need to remain at the forefront of 5G technology to maintain its market share. This is the most considerable risk the enterprise faces today. It could quickly lose customers if it doesn’t keep up with the competition.  

Even after taking this risk into account, I would buy Spirent for my FTSE 250 growth stocks portfolio right now.

The post 3 FTSE 250 growth stocks to buy appeared first on The Motley Fool UK.

However, I reckon there are still some good opportunities out there. Today, I’m going to look at two companies that have caught my eye recently.

From oil to renewables

I think it’s fair to say renewable energy is a sector that’s going grow for the foreseeable future. But the reality is that much of our energy today still comes from oil and gas.

I reckon that one good way to play the energy transition is to invest in companies whose services are needed by oil producers and renewable operators, especially offshore. My favourite stock in this sector is  Wood Group (LSE: WG), which has been in business for more than 100 years.

Wood Group has historically focused on the oil sector, but the company has diversified in recent years and now works in renewables and the wider infrastructure sector. I reckon that should support longer-term growth.

In the meantime, the company is still an important service provider to the oil sector — including the growing area of North Sea decommissioning.

What could go wrong? Market conditions are pretty tough for oil services firms these days. Wood’s profit margins have never returned to the peak levels seen from 2013-2015, when oil traded at over $100 per barrel.

The company is also still battling to repay the debt it built up when it acquired AMEC Foster Wheeler in 2017. Borrowings are coming down, but they’re still a little high for my liking.

Despite these concerns, I think Wood Group looks decent value at the moment, on around 13 times 2022 forecast earnings. I’d be happy to buy the shares at this level, as I expect to see steady growth over the next few years.

This UK share could keep growing

One company that’s impressed me over many years is FTSE 250 firm Spirent Communications (LSE: SPT). This company is one of the leading players in the network-testing and analytics sector. Its main business is providing the services and equipment needed by network operators to test services such as 5G and Wi-Fi.

The pandemic caused some extra challenges last year. Despite these, Spirent’s adjusted pre-tax profit rose by 10% to $104m last year, while its operating margin rose to 18%.

City analysts are forecasting a 17% increase in pre-tax profit for 2021. Is this the perfect business? Not quite.

Spirent must continually invest in research and development to ensure that it has the best testing solutions for new technology. The company is spending about 20% of its revenue on R&D each year at the moment and must continue to stay ahead of new trends. Falling behind could result in a multi-year slump in new sales.

This UK share isn’t cheap either. Spirent trades on around 23 times forecast earnings for 2021, with a dividend yield of just 1.6%. If steady growth continues, then I think this valuation is probably fair. But if results disappoint, then I think the stock could fall sharply.

Despite these risks, I’d buy Spirent Communications today. I reckon it’s a good quality business in a growing market. In my experience, that combination often makes for a good investment.

The post UK shares to buy for May: how I’d invest £2,000 today appeared first on The Motley Fool UK.

Why invest in this FTSE 250 stock?

Spirent Communications was founded way back in 1936. As well as 5G, it’s also involved in cybersecurity. This is an increasingly vital cog in all businesses with an online presence. It provides cloud based automation and testing solutions for a variety of needs. It also creates simulators that allow reliable testing in the performance of autonomous vehicles.

These are disruptive areas of technology that are building momentum in our changing world. 5G is particularly exciting because its instantaneously high speeds could be game-changing for so many aspects of industry. For instance, 5G connections are super-fast and reliable. This should allow for seamless multi-person video calls, autonomous driving, augmented and virtual reality solutions. Plus, it should greatly enhance those artificial intelligence programs that need to operate in real-time.

Risk vs reward

There’s considerable competition in the 5G infrastructure sector. You see, BT, Virgin Media and Vodafone are all vying for similar contracts. It also comes with high costs and immense responsibility. Managing the data transfer of vital and often sensitive communications is a serious business.

Until October last year, Spirent Communications’ share price had been on an upward trajectory for the best part of half a decade. And up to today, its price has risen 216% over five years. It now has a £1.4bn market cap. And it has a forward price-to-earnings ratio (P/E) of 22, with earnings per share of 9p and a 1% dividend yield. Its full-year revenue grew 4% for 2020.

It seems the recent pullback in its share price may be due to a slowdown in revenues caused by the ongoing pandemic.

A long-term investment

When I’m looking to invest in the FTSE 250 or any other area of the market, I always think long term. That’s because it’s easy to become distracted by short-term fluctuations in the market, but I want to invest in companies that are going to be around far into the future.

Therefore, if I think about businesses that are offering a service and have a reason to be here for the long term, then I think it makes for a more appealing investment. I feel Spirent Communications ticks this box. My primary concern is that it may not have enough of the competitive edge that I’d like. I’ll have to keep an eye on that. But I do expect it to go the distance. And I’d be happy to invest £1,000 to buy shares in this FTSE 250 business today.

The post £1000 to invest? Here’s one FTSE 250 tech stock I’d consider appeared first on The Motley Fool UK.

Of course, buying stocks and shares may not be for everyone. Investors should only invest what they can afford to lose. Returns are never guaranteed. However, I’m comfortable with the level of risk investing involves. As such, I’m always looking for opportunities.

And with that in mind, here are my top three shares to buy today. 

FTSE 250 stocks 

Spirent Communications (LSE: SPT) provides engineering services for the information technology sector. The company has recently been rolling out infrastructure to help with the 5G data revolution. Demand for its services is currently running high. City analysts forecast earnings growth of 10% for the business in 2020. 

As the world becomes more and more reliant of technology, I think the business will see a prolonged period of growth. That’s why I believe this is one of the best shares to buy today and would add it to my portfolio.

While the company does face risks, such as increased competition and rising costs, it has managed these challenges well in the past, although that doesn’t guarantee future performance. What’s more, if the corporation makes a grave mistake, which ends up causing a client to lose data, it could suffer severe reputational damage, so that’s something I’m going to watch out for. 

Shares to buy today

Thermal processing is a niche technical industry. However, it’s one Bodycote (LSE: BOY) specialises in, providing heat treatment services for clients worldwide. Bodycote is one of the largest players in this sector globally, giving it a competitive advantage. It can offer customers lower prices due to economies of scale. Moreover, customers can trust the business to produce a quality product. 

These qualities have helped the FTSE 250 business go from strength to strength over the past few years.

However, the company is exposed to similar risks as Spirent. It may have a good reputation, but that means the pressure is on to maintain quality. Customers could leave the business if it decides to cut corners to improve profit margins. An economic downturn may also lead to reduced demand. Despite these risks, I think this is one of the best shares to buy today, based on its competitive advantages. 

FTSE 250 engineering group Weir (LSE: WEIR) has similar qualities to the two companies outlined above. It produces critical components for the resource industry, such as pipes and valves. These aren’t the sort of products customers want to go wrong, as the costs of a broken pipe can be high. That’s Weir’s advantage. It’s a trusted provider that has been engineering products for clients for decades.

Unfortunately, this industry is highly cyclical. The company’s earnings can and do gyrate significantly based on economic cycles. Therefore, a prolonged economic downturn may cause significant pain at the group. This suggests the business may not be suitable for all investors. 

Nevertheless, companies with competitive advantages like Weir are few and far between. That’s why I’d buy this engineer despite its exposure to the highly cyclical resource industry. 

The post Shares to buy today: 3 FTSE 250 stocks I’d add to my portfolio appeared first on The Motley Fool UK.