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 Direct Line 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 Direct Line 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.

But what does the head of The Motley Fool’s investing team think?

Should you invest £1,000 in Direct Line 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 Direct Line made the list?

See the 6 stocks

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

Happy couple showing relief at news
Investing Articles

Here’s how much an investor needs in an ISA to generate a £27,500 second income

Imagine creating a second income that's the equivalent of the average post-tax salary in the UK. Dr James Fox explains…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Here’s the Tesco share price forecast for the next 12 months!

Tesco's valuation has dropped to multi-year lows after recent share price weakness. Is now the time to consider buying the…

Read more »

Illustration of flames over a black background
Investing Articles

Just released: March’s higher-risk, high-reward stock recommendation [PREMIUM PICKS]

Fire ideas will tend to be more adventurous and are designed for investors who can stomach a bit more volatility.

Read more »

Investing Articles

I asked ChatGPT for the best FTSE 100 investment trust to buy… here’s what it said

There aren't many FTSE 100-listed investment trusts and according to ChatGPT there’s only one winner. Dr James Fox explores.

Read more »

Investing Articles

How much should investors put in an ISA to achieve the average UK wage in passive income?

Millions of Britons use the Stocks and Shares ISA as a vehicle to build wealth, but a successful investor can…

Read more »

Investing Articles

2 cheap FTSE dividend stocks to consider buying for an ISA

The deadline for using up the Stocks and Shares ISA allowance is almost upon us. Paul Summers has spotted two…

Read more »

Investing Articles

£20k in a Stocks and Shares ISA? Here’s how an investor could target £1,342 in passive income each month

Christopher Ruane explains how a long-term approach to investing a Stocks and Shares ISA could generate a four-figure monthly income.

Read more »

Shot of an young Indian businesswoman sitting alone in the office at night and using a digital tablet
Investing Articles

Millions are missing out on ISA account benefits! Here’s what I’m doing now

Swathes of people are missing the chance to supercharge their returns with a Stocks and Shares or Lifetime ISA account.…

Read more »