The FTSE 250 index of shares has risen a healthy 7.5% in 2024. Like the FTSE 100, it’s risen as investors at home and abroad have piled into British value shares.
Both indices have underperformed in recent years due to economic weakness and political turbulence. So despite continued strength as the year draws to a close, there are still plenty of bargains for investors to snap up today.
With attractive metrics like high dividend yields and/or low price-to-earnings (P/E) ratios, the following two FTSE 250 shares have caught my eye. But are they bona fide bargains or potential investor traps?
Should you invest £1,000 in Babcock right now?
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Energean
Based on 2025 earnings and dividends, oil stock Energean (LSE:ENOG) appears to be one of the index’s greatest value stocks.
Its P/E ratio for next year is just 4.2 times. Meanwhile, its dividend yield clocks in at 17%.
This unbelievable paper value reflects Energean’s share price slump this year. Could this represent a dip-buying opportunity?
I’m not so sure. The company produces oil and gas off the coast of Israel, and while operations have been unaffected so far by regional conflict, this remains an ongoing threat.
This is not all. While production’s rising, Energean last month cut its output estimates to 150,000 -155,000 barrels of oil equivalent day (boepd) from 155,000 -165,000 boepd. It put this down to weather and market dynamics in Israel affecting November sales, and expectations of flat month-on-month sales in December.
This could be a bad omen for 2025 production estimates which are due in January.
Finally, I’m also concerned about the near-term oil price outlook for next year. Crude values could fly if interest rate cuts stimulate demand and/or fresh supply constraints emerge. However, market fundamentals don’t look especially encouraging today on recent production and demand newsflow.
Analysts at ING Bank are now predicting market oversupply next year of 500,000 barrels a day as non-OPEC output soars.
I think the risks of Energean shares could outweigh the potential rewards. Even at today’s rock-bottom prices.
Babcock International
Babcock International (LSE:BAB) doesn’t have the largest dividend yield on the FTSE 250. For this financial year (to March 2025) the reading here’s a modest 1.4%.
However, I think the defence giant looks brilliantly cheap and is worth considering based on predicted earnings. Its P/E ratio of 11.5 times is well below the corresponding readings of most other UK defence shares.
BAE Systems, for instance, trades on a forward P/E of 18.2. Chemring shares meanwhile sport a multiple of 17.9.
Moreover, the price-to-earnings growth (PEG) ratio on Babcock shares is also ultra low. At 0.3, it’s below the watermark of 1 that indicates that a stock is undervalued.
Supply chain issues remain a problem across the defence sector. Yet the industry outlook remains positive as arms spending reignites, reflecting a multitude of geopolitical worries in the West.
Babcock — which provides engineering and training services — is effectively capitalising on this favourable landscape. Between April and September, its revenues and underlying operating profit leapt 11% and 10% respectively.
With NATO poised to keep raising defence budgets, I expect strong profits growth during the next few years and possibly beyond.
