The FTSE 250 hasn’t performed well this year. In fact, the index is down 22% in 2022 and this reflects concerns about the UK economy more than the FTSE 100, which gets most of its income from overseas.
The Footsie has also been pulled upwards by commodity stocks. Meanwhile, the FTSE 250 contains stocks in several industries, such as the travel sector, which have performed poorly this year.
However, for me, it’s a good place to look for lesser-known stocks with huge potential.
Passive income stocks: our picks
Do you like the idea of dividend income?
The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?
If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…
Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.
What’s more, today we’re giving away one of these stock picks, absolutely free!
So, here are two stocks I’d buy for my portfolio and hold for five years.
Morgan Advanced Materials
At 252p, Morgan Advanced Materials (LSE:MGAM) is trading at a 52-week low. The Windsor-based company manufactures specialist products, using carbon, advanced ceramics and composites.
However, the falling share price belies positive signs from the firm.
In Q1, revenue increased 10.9% on an organic constant currency basis, compared to the same period last year.
In May, Morgan Advanced Materials reaffirmed its guidance for full-year organic revenue growth of 4% to 7% in 2022.
“We will see higher inflation in 2022 and expect higher pricing and continuous improvement to offset this,” it said. The group suggested its margins will actually expand further during the year.
I think long-term prospects are good too. The renewables sector is a key market for the company, with its products used in both wind turbines and solar panels. This is a multi-trillion dollar market that will continue to grow in line with net-zero agendas.
The company currently has a price-to-earnings (P/E) ratio of 11, and the forward P/E is even more attractive at 9.8. It’s also got a dividend yield of 3.6%.
But I’d buy this stock for the long-term growth potential, particularly as global infrastructure spending picks up in the coming years.
One concern is the effect of inflation on costs, but the company appears confident that increasing its prices won’t impact demand.
Chemring Group
Shares in Chemring Group (LSE:CHG) soared after Russia’s invasion of Ukraine, reaching pre-pandemic levels.
The business provides a range of advanced technology products and services to the aerospace, defence and security markets.
In June, Chemring posted a rise in interim profit and revenue, increased its dividend, and backed its expectations for 2022.
In the six months to April 30, underlying pre-tax profit rose 22% to £33.1m and revenue rose 11% to £220.4m.
The dividend was lifted 19% to 1.9p a share.
It also said that around 85% of expected H2 revenue was in the order book in April, or has already been delivered.
However, I’d buy Chemring stock because of a trend towards increased defence spending around the world, in addition to the immediate increases we’re seeing now because of Russia’s invasion of Ukraine.
There are of course some risks and issues. For one, contract agreements with the US Department of Defense have been delayed and will hopefully come in towards the end of the year. It’s also worth noting that the dividend yield of around 2%, isn’t that attractive.
