Outperforming the index so far this year, though, is Lloyds (LSE: LLOY). It’s gained 12%, and its valuation suggests that there could be more capital growth to come despite the wider banking sector reporting an uncertain outlook. Alongside another potential recovery share which released results on Friday, Lloyds could be worth buying for the long term.

Turnaround potential

The other stock in question is global hotel operator Millennium & Copthorne (LSE: MLC). Its full year results highlighted the challenges experienced across the hospitality industry, with revenue per available room (RevPAR) increasing just 0.7% at constant currency. Pre-tax profit fell by £41m to £106m, with deteriorating US/China trade relations, Brexit and a rising minimum wage in some of its regions contributing to disappointing overall performance.

Looking ahead, the company intends to invest in its hotels, as well as reposition them through rebranding. It’s seeking to adapt to a changing hotel industry, with serviced apartments providing a rising competitive threat.

With Millennium & Copthorne’s shares trading on a price-to-earnings (P/E) ratio of around 14, the stock could offer good value for money. It has declined in value by 14% in the last year, which suggests that investors may have priced in the potential difficulties that it faces. With what could prove to be a sound growth strategy, the stock may deliver a successful recovery in the long run.

Changing industry

The rise in the Lloyds share price could reflect improving sentiment among investors towards the banking sector. Due to improvements in technology and shifting consumer trends, the industry is undergoing a significant and rapid change at the present time. Banks across the industry are rationalising their branch networks and expanding their online and mobile banking operations. This could provide a growth stimulus for the industry, and may lead to stronger net profit growth rates than are currently being forecast.

Since Lloyds has a P/E ratio of 7.6, it could offer a margin of safety compared to some of its index peers. Of course, operating conditions may remain uncertain, but even after its recent share price rise the stock’s valuation appears to factor in potential risks caused by Brexit.

Although inflation recently declined to its lowest level in two years, in the coming years there is likely to be a rise in interest rates. This could prompt higher net interest margins across the sector, which may lead to higher levels of profitability. With new PPI claims having a deadline of August 2019, the difficulties of the last decade could ebb away and lead to Lloyds having the potential to outperform the FTSE 100.

The post Have £1k to invest? I think the Lloyds share price could crush the FTSE 100 this year appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Lloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking Group. 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.

Cop that!

Millennium & Copthorne Hotels (LSE: MLC). What a name. It combines a bizarre mixture of the grandiose (Millennium) and the mundane (Copthorne). Actually, that makes sense, given that its Millennium range is aimed at global travellers in gateway cities, while its Copthorne brand offers “comfortable hotels at a comfortable price“. This also gives the company a foot in two slightly different markets.

What it hasn’t done is drive the share price higher. The £1.46bn company’s share price languishes 4% lower than it was five years ago, yet it trades at a pricey 18.65 times earnings. The business has struggled in the US and in particular New York, according to chairman Mr Kwek Leng Beng, who is now looking to overhaul the US management structure in a bid to reverse underperformance.

Lights out

Group revenues are rising elsewhere, notably in London and New Zealand, although Singapore has been hit by uncertain economic conditions, while geo-political tensions have scared tourists away from Seoul and Taipei. Total Q1 revenue rose 2.3% to £218m at constant currency rates but Millennium & Copthorne has been given a helping hand by foreign exchange tailwinds, which drove revenues up 16.1% to £223m in reported currency. Profit before tax slipped a hefty 38.1% to £21m on a constant currency basis, but by a slightly-less-hefty 27.8% to £13m in reported currency.

It seems to me that investors are being offered a Copthorne investment case at a Millennium price, especially when you examine its disappointing 1.7% yield. But wait, City analysts are more optimistic, earnings per share (EPS) are forecast to rise 25% this calendar year, and 4% in 2018, reducing the forward valuation to 15.8 times earnings. However, I still reckon this is one to sleep on for now.

New Page

PageGroup (LSE: PAGE) provides specialist recruitment services in more than 36 countries and operates across a range of specialist industries, including accountancy, engineering, finance, marketing, offshore, oil and gas, retail, sales and technology.

Formerly known as Michael Page International, the group delivered Q1 gross profits of £170.3m, up 9.1% in constant currency and 19.7% in reported rates. This showed a marked improvement on the 3.8% growth in Q4 as underlying trading improved, albeit helped by a one-off lift from Easter being in Q2 this year, against Q1 last year.

New recruit

PageGroup’s share price is up 20% in the last six months which partly justifies its toppy valuation of 20.26 times earnings. You also get a dividend of 2.52%. Its foreign divisions have been outpacing the Brexit-afflicted UK, with profits up 14.8% in Europe, the Middle East and Africa (EMEA), 15.1% in the Americas, and 26% specifically in France. However, Singapore has inflicted some damage here too, as has Brazil and the struggling financial services sector.

PageGroup boasts a strong balance sheet with net cash of £86m and four consecutive years of healthy EPS growth, which should rise another 11% growth this calendar year and 8% in 2018. By then, the yield is expected to have progressed to 3.8%. This stock could be worth recruiting to your portfolio

The post Can these 2 FTSE 250 growth stocks justify their valuations? appeared first on The Twelfth Magpie.

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Harvey Jones has no position in any 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.

Today I’m going to look at two FTSE 250 companies that are both trading at big discounts to their net asset values. As we’ll see, I believe gains of 50% or more could be possible on both stocks.

A power play

Power generation specialist Drax Group (LSE: DRX) is working hard to leave its coal-fired past behind and become a more diverse business, built around renewables.

The company now generates 63% of its power by burning renewable wood pellets, rather than coal. Drax has also acquired a gas generation company and is building a business which sells energy directly to business customers. In my view, the group is becoming more like a regular big utility.

I’d expect a business like this to trade above its book value. However, although Drax shares rose by 20% last year, they currently trade at a 34% discount to their tangible book value of 494p per share.

Drax stock would have to rise by 52% from its current level of 325p in order to trade in line with its book value.

This could be an opportunity

I don’t expect its share price to rocket up to 494p overnight. As things stand, the group’s profits aren’t high enough to justify such a valuation, in my view.

However, when sound companies trade at a discount to their book value, it’s often an indicator that a future re-rating is likely when profits recover.

Drax’s adjusted earnings are expected to rise by 148% to 12.4p per share this year. A further increase of 47% is pencilled-in for 2018. These figures put Drax stock on a forecast P/E of 26, falling to a P/E of 18 in 2018. The shares also offer a prospective yield of 2.5% for 2017, rising to 4.4% in 2018.

If Drax can deliver on these forecasts and maintain this momentum, then I think the shares are likely to rise further. Drax has gone onto my watch list as a potential value buy.

A luxury bargain?

FTSE 250 hotel operator Millennium & Copthorne Hotels (LSE: MLC) operates about 125 upmarket hotels in top destinations such as New York, London and Singapore. Around half of these are owned or leased, while the remainder are managed or franchised.

Millennium’s stock currently trades at 441p. That’s a discount of 55% to the group’s net asset value of 976p per share. Although property groups often trade at a modest discount to their net asset value, this seems excessive to me given that the group appears to be in reasonable financial health.

Admittedly M&C is facing some headwinds. Underlying revenue per room fell by 2.3% last year. Costs are rising and room rates are falling. Only the weaker pound helped boost the firm’s reported profits last year.

The group’s growth may yet come under more pressure. But the balance sheet still looks quite safe to me, with net debt of £707m representing just 17% of the value of properties and investments.

Although the short-term story looks uncertain, I believe that the stock’s big discount to book value suggests that the long-term view is more positive.

The post 2 FTSE 250 stocks that should be worth 50% more appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Roland Head has no position in any 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.