2 FTSE 250 growth stocks I’d consider buying with £2,000

These two FTSE 250 (INDEXFTSE: MCX) oil sector stocks could help you play the crude recovery, says Harvey Jones.

| 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.

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.

The last year has been good for energy explorers such as Tullow Oil (LSE: TLW), whose stock is up 65% as crude hovers around $80 a barrel. However, its share price is down almost 4% following today’s trading statement and operational update, despite reporting that first-half 2018 oil production in West Africa is expected to average 87,400 barrels of oil per day (boepd), in line with expectations.

Over a barrel

Other numbers were also decent, with first-half group oil and gas production expected to average 90,100 boepd. Overall full-year group production guidance is 89,000-95,000 barrels, a slight increase on its previous range of 86,000 to 95,000. 

It looks positive enough with CEO Paul McDade reporting substantially reduced gearing and financial discipline embedded across the group,” allowing it to focus on growth. Tullow is accelerating production and cash flow growth across West Africa, making “good progress” in East Africa and is about to embark on a multi-year frontier drilling campaign targeting high-impact prospects in Africa and South America.

Cash flows

On 25 July, Tullow expects to report first-half revenues of $900m and gross profit of $500m. Free cash flow is a solid $300m. This looks far healthier than July last year, when it posted a £519m half-year loss after booking $642m of payments due to the low oil price.

The future looks promising, with some estimating the £3.3bn FTSE 250 stock’s share price could hit 300p this year, some 25% higher than today’s 240p. Its debt pile remains substantial, even if net debt at June 30 is expected to decrease to $3.2bn, from $3.5bn in 2017. Trading at a forecast 11.7 times earnings, it isn’t overly expensive. Of course the ideal time to buy this stock was one year ago, when it was in the doldrums, but it still looks tempting today.

Updated

Another FTSE 250 energy stock, £4.36bn oilfield services play Wood Group (LSE: WG), also reported today, and again the market response was dour. It is down almost 3% as its pre-close trading update for the six months to 30 June suggested it might struggle to hit targets unless trading picks up in the second year.

Challenging conditions in the Gulf of Mexico hit first-half performance at its Americas arm, while North Sea activity showed only “moderate growth” from a low base. However, management remains “confident of delivering a stronger second half due to our typical second-half bias and the phasing of cost synergies, projects and market recovery”. Its full-year outlook is unchanged.

Positive earnings

The group has capitalised on lower valuations across the industry through its recent tie-up with Amec Foster Wheeler and its stock is up 24% in the last three months. Investors were expecting more today, and have reacted with disappointment. However, the future looks brighter. After two successive years of double-digit negative earnings, City forecasters are pencilling in 3% growth for 2018, and a hefty 22% for 2019.

Recent share price growth has driven up its forecast valuation, which is 15 times earnings. I would have hoped to have shown you a bigger discount. On the plus side, the forecast dividend is 3.9%, with cover of 1.6. One to consider, anyway, if you are bullish about the oil outlook.

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.

harveyj has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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

Up 105% in a year! Is this rocketing FTSE bank the perfect pick for my Stocks and Shares ISA?

Harvey Jones is drawing up a shortlist of stocks to purchase inside his Stocks and Shares ISA allowance. This FTSE…

Read more »

Investing Articles

Is it madness to buy Palantir shares after Q3 earnings?

Palantir stock's surging again after the firm's Q3 earnings report. But after a 150% gain, is it too late to…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

£6,000 in savings? Here’s how I’d aim to turn that into £1,032 a month of passive income!

A small investment in high-dividend-paying stocks with the returns used to buy more shares can generate big passive income over…

Read more »

Chalkboard representation of risk versus reward on a pair of scales
Investing Articles

As Lloyds’ share price tumbles 14%, is this an unmissable opportunity for me to buy at a bargain-basement price?

The Lloyds share price is substantially below its year high, but decent earnings prospects should drive its price and dividend…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

2 UK shares that could rise if Trump wins the Presidential election

These UK shares are among the FTSE 100's most popular stocks. And they could rise in value if Donald Trump…

Read more »

Closeup ruffled American flag representing US stocks and shares
Investing Articles

2 UK stocks that could rise if Harris wins the Presidential election

Royston Wild believes these UK stocks could receive a bump if Kalama Harris wins the Presidency, giving their share prices…

Read more »

Investing Articles

After a 96% plunge, is buying more Aston Martin shares throwing good money after bad?

Just two weeks after buying Aston Martin shares Harvey Jones found himself nursing a painful loss. Yet after recent news…

Read more »

Investing Articles

After crashing 45% in October, should I buy this FTSE 250 share for my Stocks and Shares ISA?

Roland Head explains why he’s tempted to add this risky FTSE 250 turnaround share to his Stocks and Shares ISA…

Read more »