The FTSE 250 fire sale continues! 2 bargain stocks to buy today

The FTSE 250 continues to offer exciting bargains as the index recovers from last year’s correction. Are these the best buying opportunities right now?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Mature black couple enjoying shopping together in UK high street

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Despite heading in the right direction these past 12 months, the FTSE 250 continues to offer bargains. The economic environment is improving, but investors are still punishing capital-intensive companies in the face of rising interest rates.

Caught in the crossfire of this pessimism are two renewable energy empires, Greencoat UK Wind (LSE:UKW) and Foresight Solar Fund (LSE:FSFL). And there is some justification for concern. After all, building wind and solar farms isn’t cheap, and it’s resulted in a lot of debt being racked up over the years.

However, even with the added pressure from high debt-servicing costs, neither firm appears to be in serious trouble from what I can tell. And with both stocks down by double digits despite raising dividends, this, to me, looks like an attractive entry point.

Should you invest £1,000 in Foresight Solar Fund Limited right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Foresight Solar Fund Limited made the list?

See the 6 stocks

Investing in renewable energy infrastructure

Foresight and Greencoat have very similar business models. They both use shareholder and lender capital to acquire green energy assets to generate and sell electricity to suppliers such as SSE, Centrica, and EDF Energy. And Foresight has also begun taking things a step forward by investing in industrial-grade energy storage solutions on top of its solar assets.

While the initial cost is high, both solar and wind power technologies don’t require much maintenance compared to other energy systems. As such, both groups boast high double-digit profitability. And, in turn, this has led to impressive levels of cash generation.

In fact, it’s precisely how both companies have successfully raised dividends for eight consecutive years. And this trend doesn’t look like it’s changing even with higher interest rates, considering both have hiked their interim dividends once again.

Shifting landscapes spell trouble

Despite the seemingly solid performance, investors appear to remain unimpressed. And there might be a good reason for it.

Higher interest rates may not pose a threat to the firms’ existing loan book, but to continue expanding operations and raising dividends, more debt is going to be needed. And, over time, as old cheap loans mature and new expensive ones make up the bulk of the debt portfolio, profit margins will likely get squeezed.

This threat is particularly problematic since neither Greencoat nor Foresight have any pricing power to offset this impact. Don’t forget energy prices are driven by the market, not the individual companies.

The bottom line

As global warming becomes an evermore present threat, demand for clean energy sources is on the rise. And the UK in particular appears to be at the vanguard with 36% of total electricity generation coming from renewables in the last 12 months. For reference, that’s up from 4.8% 10 years ago.

With that in mind, I think the opportunities for Greencoat and Foresight are only going to increase moving forward. The higher cost of funds will demand more capital allocation skill from the management teams. However, with a near-decade-long track record of creating value for shareholders, I remain optimistic, especially at today’s cheap valuations.

Should you buy Foresight Solar Fund Limited now?

Don’t make any big decisions yet.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.

And he believes they could bring spectacular returns over the next decade.

Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows...

When such enormous changes hit a big industry, informed investors can potentially get rich.

So, with his new report, Mark’s aiming to put more investors in this enviable position.

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Zaven Boyrazian has positions in Greencoat Uk Wind Plc. The Motley Fool UK has recommended Foresight Solar Fund and Greencoat Uk Wind Plc. 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.

More on Investing Articles

Investing Articles

How much would a 45-year-old need to invest in an ISA to earn a £1k monthly passive income at 65?

Harvey Jones looks at how much an investor would need to put away every month to build a steady passive…

Read more »

Investing Articles

3 things to do ahead of the new 2025-26 ISA year

It's time for us all to put on our investing boots and get to work on developing our plans for…

Read more »

Older couple walking in park
Investing Articles

Is £150,000 enough to generate £1,000 a month in passive income?

Stephen Wright takes a look at three UK stocks with dividend yields above 8% that passive income investors might be…

Read more »

Investing Articles

Aim to earn a £50k second income in retirement by investing just this much each month

Even with a small monthly investment, it’s possible to earn a £50k second income with a successful investment strategy and…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

Down 22% in a month! Is this my chance to buy shares in this FTSE 100 outperformer?

Shares in InterContinental Hotels Group have outperformed the FTSE 100 over the long term. So is a chance to buy…

Read more »

Investing Articles

How much would Tesla stock be worth if it was valued like Nvidia?

The market seems to view Tesla as a tech stock rather than a car manufacturer. What could this mean for…

Read more »

Investing Articles

This ex-penny stock skyrocketed 900% in 2020! Is it about to surge again?

This subdued hydrogen penny stock was hot in 2020, but with demand for green hydrogen rising in Europe, can the…

Read more »

Investing Articles

Looking for cheap shares to buy in March? Here are 3 to consider

Zaven Boyrazian shares three cheap-looking stocks he’s considering buying as long-term investment opportunities while the valuations remain cheap.

Read more »