With a good few decades of investing ahead of me, I’m always on the lookout for great growth stocks to buy. Even better if their share prices are going through a period of temporary weakness.

With this in mind, here are three quality companies now trading near 52-week lows.

Fevertree Drinks

Late in January, one-time market darling Fevertree Drinks (LSE: FEVR) announced that cost headwinds would be more significant than expected, meaning that margins at the mixer specialist are likely to “remain broadly flat in 2022“.

This announcement succeeded in taking away most of the gains made in the second half of 2021. Fevertree’s share price now stands close to its 52-week low. So is now the time to buy the stock?

Well, a valuation of almost 49 times forecast earnings suggests not. Anything this high implies/demands a company should deliver perfectly on its strategy. That’s not easy considering the ‘interesting’ economic outlook right now.

Then again, this is not a stock that’s ever likely to trade at a bargain price. Prior to the pandemic, returns on capital — a key metric for star fund manager Terry Smith — were seriously good. Fevertree’s finances also look solid with hardly any debt on the balance sheet. There’s lots of ‘white space’ left for the company to grow into and it already possesses a great brand. 

I think there’s a good chance of this company recovering strongly, in time. For now however, it stays on my watchlist.

Softcat

IT solutions provider Softcat (LSE: SCT) is next up. The FTSE 250 member’s share price is also getting close to its 52-week low (1,419p, set last April). Considering its stellar track record, this selling pressure grabs my attention.

Like Fevertree, Softcat has a history of generating seriously good returns on the money it invests in the business. It’s clearly benefited hugely from the increased demand for support from clients over the pandemic too. 

That’s not to say Softcat is without risk. Margins, while decent for its industry, are average relative to the rest of the market. The stock also trades on a P/E of 33. That’s pricey, considering that earnings aren’t expected to grow much at all this year. 

Given that the stock could fall further if the rotation into value stocks continues in 2022, Softcat only makes it to my watchlist, for now. 

Games Workshop

A final growth share that’s let off steam has been the fantasy figurine-maker Games Workshop (LSE: GAW). The shares are now down over 20% year-to-date and only slightly above the 52-week low. Product release delays and increasing costs are partly to blame.

Of the three mentioned here, this is the stock I’d be most likely to buy today. While fixating on valuation is never a good idea, a forward P/E of 22 looks very reasonable, considering its dominance of this niche market. Again, its finances are robust compared to many other companies.

Yes, there’s a risk the share price could dip lower if margins continue to be squeezed. As such, it may pay for me to buy in tranches if I end up pulling the trigger.

There was a time when Games Workshop was knocking on the door of the FTSE 100. Assuming it is able to successfully push its Warhammer franchise over the next few years via games and films, I’m confident this could still happen. 

The post 3 top growth stocks near 52-week lows appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Fevertree Drinks, Games Workshop, and Softcat. 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.

Cheap thrills

Video gaming has been one of the most popular activities for many during the lockdown. This should be great news for UK-listed developers, such as Frontier Developments, Sumo and Team 17. My personal choice in this space, however, is Codemasters (LSE: CDM). 

An expert in the lucrative niche that’s driving games, the firm holds the coveted Formula 1 franchise. It’s also the brains behind the popular DiRT series.

Buying an individual developer arguably takes more guts than buying a ‘picks and shovels’ stock like services provider Keywords Studios. That said, the current valuation of Codemasters surely helps mitigate this risk. Changing hands for 15 times earnings, the stock is also considerably cheaper to acquire than its aforementioned peers.

Aside from the great outlook for the games industry in general, the company has net cash in its balance sheet and will launch the much-anticipated Fast and Furious Crossroads game in 2021.  

Growth play

As both a small-cap investor and customer, I think online musical instrument and equipment retailer Gear4music (LSE: G4M) is another great selection for those with long investing horizons.

Like the video games industry, Gear4music has been a beneficiary of the lockdown. CEO Andrew Wass recently said the company had seen high demand for its products since late March “as an increasing number of people recognise the benefits that playing musical instruments can bring during these difficult times.”

Regardless of the recent boost to business, the company was already growing nicely. Total sales for the year to the end of March came in at £120.3m. Almost half of this (£58.5m) was from outside the UK, giving a good amount of geographical diversification to earnings. In line with the company’s objective, gross margin also recovered over the last year.

Gear4music’s small-cap status means its share price is likely to remain volatile, but the long-term outlook looks very promising. The relentless rise in online retail, coupled with the struggles many independent bricks and mortar instrument sellers are likely to experience going forward, could play right into the minnow’s hands. 

Reassuringly expensive

My final growth pick for today is IT re-seller and services provider Softcat (LSE: SCT). Demand for cloud-based, datacenter and networking and security solutions from organisations will surely only increase post-pandemic.

The FTSE 250 member could be the ideal way of playing this trend. Softcat already generates exceptional returns on the money it invests in itself and, again, boasts very sound finances.

Of course, the fact that the business already trades at a punchy valuation (30 times earnings) could mean it’s hit harder than most if — and that’s a mighty ‘if‘ — markets eventually resume the downward trajectory witnessed in March.

So long as you’re in for years rather than weeks, I can only see the share price going in one direction in time. Perhaps this may be one to buy into regularly, rather than in one fell swoop.

The post Have £3,000? Here are 3 top growth stocks I’d buy for my ISA appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Softcat. 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.

Ringing a Bell

Investment platform AJ Bell (LSE: AJB) attracted plenty of attention when it announced plans to float 35% of its shares last autumn, and rightly so given subsequent strong performance, which has seen its stock rise 60% so far in 2019, against around 9% for the index as a whole.

Roland Head even suggested AJ Bell could be the next Hargreaves Lansdown, and who wouldn’t want to get in at the ground level if that was the case? Although he also noted that AJ Bell’s operating profit margins of 31.5% trailed Hargreaves at 65%, so it has some way to go.

Brexit bother

The AJ Bell share price fell back in June when Invesco dumped its entire 9.3% stake for £144.4m, although this mostly looked like profit-taking as the US fund group retains a 16.1% holding.

Brexit hangs over every UK-focused stock and this one is no different, as economic and political uncertainty cut dealing activity by 14%. However, it still posted 17% revenue growth to £50.1m in the six months to 31 March, with profit before tax of 27% to £17.7m, and margins creeping up 2.9 points to 35.3%.

Bit pricey

Customer numbers rose 9% while the retention rate is now 95.3%, up from 95.1% in the previous financial year. As a journalist, I see that AJ Bell is making a big push to raise its profile, with investment director Russ Mould popping up on TV and being very helpful to people like me.

Now to the inevitable. It isn’t cheap, trading at around 50 times earnings. Then again, Hargreaves is never cheap either. AJ Bell stock is risky at this price, especially if we get market volatility in the second half of the year. It is still tempting, though.

Out of the bag

The Softcat (LSE: SCT) share price has also been baring its teeth in 2019, rising 67% to 964p at time of writing as the cybersecurity business continues its strong growth record. The group is in the right sector for growth, as online fraud continues to grow exponentially, leading to a never-ending arms race between cyber cops and robbers.

Rupert Hargreaves says the global cyber security market is expected to double by 2024, and Softcat’s track record suggests it can double with it.

On the up

The group’s latest trading update said the company continues to perform well and full-year results should now be slightly ahead of previous expectations. Half-year results to 31 January showed revenues growing at pace, up 21.1% to £434m while operating profit rose 40.4% to £33.9m.

Customer numbers and profit per customer are both climbing and the group remains debt free with a cash balance of £52.8m.

Strong growth in the Softcat share price means the £1.9bn company isn’t cheap, trading at 29 times forward earnings. It yields just 1.3% but management seems progressive, recently hiking the interim dividend 36%.

My biggest concern is that both AJ Bell and Softcat have created strong investor expectations and could take a knock if they fail to match up. Right now, though, the signs look good.

The post These 2 FTSE 250 stocks are thrashing the market and I’d happily invest £1,000 in each appeared first on The Twelfth Magpie.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. 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.

As such, now could be a good time to buy such stocks while they offer high total return prospects. In fact, selling higher-rated shares and recycling the capital into cheaper stocks could be a sound strategy.

With that in mind, here is a 7%+ yielding FTSE 100 share that could be worth buying today, as well as a FTSE 250 stock that appears to have an unfavourable valuation.

British American Tobacco

Tobacco stocks have been highly unpopular over the last few years, with changing regulations causing companies such as British American Tobacco (LSE: BATS) to record share price declines. This means that the stock now has a dividend yield of over 7%, while it is expected to raise dividends at a rapid rate over the medium term.

In fact, the company’s dividend appears to be highly affordable. It is covered 1.5 times by profit, while earnings growth of 9% is forecast for the current year. This indicates that there could be scope for a continued rise in dividends as the business raises prices on cigarettes and invests in the development of reduced-risk products.

Although the tobacco industry does not offer the defensive appeal that it did a few years ago, with cigarette volumes likely to remain under pressure, the increasing popularity of e-cigarettes presents a growth opportunity. With British American Tobacco having a strong position in the next-generation products industry, and the stock trading on a price-to-earnings (P/E) ratio of 9, it seems to offer scope for capital growth and income investing potential.

Softcat

While British American Tobacco appears to offer excellent value for money, FTSE 250-listed provider of IT infrastructure products and services, Softcat (LSE: SCT), seems to be overpriced. The company’s shares have risen by 59% since the start of the year, and now trade on a P/E ratio of 32.

The company’s trading update released on Monday showed that it is performing well, with it delivering strong year-on-year growth across all income and profit measures. Its growth is broad-based, with different technology areas and customer segments delivering increases. As such, it is set to beat expectations for the full year.

However, a strong performance from Softcat from a business perspective may not be replicated in a rising share price. Its valuation appears to have become overly generous, with a forecast rise in net profit for the current year of 5% suggesting that its share price could come under pressure over the near term. As such, now may be a good time to pivot towards undervalued shares within the FTSE 350.

The post Yielding over 7%, this FTSE 100 dividend stock still looks dirt cheap to me appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of British American Tobacco. 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.

So, what’s caused Softcat shares to spike up to a new all-time high today? Let’s take a closer look at the stock.

Strong growth 

The reason that Softcat shares are up today (+6% at the time of writing) is that the group has released its half-year report for the six months to 31 January and the numbers look good.

Indeed, highlights for the six-month period included a 21% rise in revenue to £434m, a 41% surge in diluted earnings per share to 13.8p, and a hugely impressive 36% rise in the interim dividend to 4.5p per share. The group also added 620 new customers.

CEO Graham Watt commented: “It’s been another period of very strong performance for the Company, characterised by additional market share gains,” and also added that the group expects “a full-year outcome marginally ahead of previous expectations.”

Looking at these results, it’s clear that Softcat has plenty of momentum at the moment. Are the shares worth buying now?

Valuation

Softcat is a stock that I have historically been very bullish on as the company has an excellent growth track record: it has now registered 54 consecutive quarters of unbroken year-on-year income and profit growth, which is an amazing achievement. I actually named the stock as one of my top technology picks for 2017 and since then, it has risen 220%.

The last time I covered SCT, in November, I was seeing a lot of value on the table. The stock had taken a hit in October’s equity market sell-off and its P/E ratio had fallen to 22, which I saw as a bargain. I said at the time that I was “tempted to begin building a position at current levels” and I’m extremely frustrated that I didn’t pull the trigger on this one.

Fast forward to today, and the shares are up nearly 40% since my November article and they currently trade on a forward P/E of around 29. At that valuation, there’s clearly not as much margin for error with the shares.

So right now, I see the shares as more of a ‘hold’. I’m still bullish on the medium-to-long-term investment case for Softcat however, with the stock up over 50% this year, I think it’s probably fully-valued at the moment. In my view, this is a great one to buy on the dips.

The post An ex-Neil Woodford FTSE 250 stock has exploded to a new all-time high. Would I buy, sell or hold? appeared first on The Twelfth Magpie.

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Edward Sheldon 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.

This performance puts Softcat in an elite club of FTSE 250 businesses that have seen their stock prices triple over the past few years. Another company that recently joined this club is TV and film producer Entertainment One (LSE: ETO). 

Over the past three years, shares in Entertainment One, which is best known for its Peppa Pig franchise, have jumped 195%, excluding dividends. Including distributions to investors, every £1,000 invested in the stock three years ago is worth £3,130 today. A similar investment in Softcat would be worth £3,209, including dividends.

Following this performance, you might think these stocks have given all they can. But I firmly believe both Softcat and Entertainment One are only just getting started and I believe there’s a strong chance the shares could double again from current levels.

Booming market

Softcat’s revenues and earnings have exploded over the past five years thanks to the booming cybersecurity market. Analysts are expecting the company to report earnings per share growth of 31p this year which, if achieved, will mark an increase of 200% since 2013. Over the same timeframe, revenues have expanded by 220%.

According to various forecasts, the global cybersecurity market is expected to double in size between 2018 and 2024, implying a mid-teens annual growth rate for the industry. If Softcat continues doing what it has for the past five years, I see no reason why its earnings cannot grow at a similar rate. 

That said, City analysts aren’t as optimistic. They’ve only pencilled in earnings growth of 12% for 2019 and 6% for 2020. However, Softcat has a history of outperforming expectations so I think the cyber security market growth rate might be more indicative of a company’s potential than City projections.

With this being the case, and earnings on track to double over the next six or seven years, I don’t think it’s unreasonable to suggest the stock could double again from current levels, even though it’s currently dealing at a forward P/E of 26.6. The stock also supports a dividend yield of 2.9%.

From strength to strength

City analysts are a lot more optimistic about the prospects for Entertainment One. Over the past five years, this company has transformed itself from a struggling, loss-making business lacking direction, to one of the fastest growing production businesses around.

Sales have nearly doubled since 2013, and operating profit has jumped from just £14m to £114m for 2018. 

Analysts think the company can chalk up earnings growth of around 10% per annum for the next two years. If it manages to achieve this, based on current estimates (analysts have pencilled in earnings per share of 27.3p for 2020) you can buy shares in Entertainment One for just 16 times 2020 earnings today.

That valuation might appear pricey at first glance, but compared to its international competitors, the Peppa Pig producer looks cheap. 

For example, shares in Lions Gate Entertainment, a US-listed producer of films and TV programmes, is currently trading at a forward P/E of 27.3, implying Entertainment One could be worth 70% more than its current price. If earnings continue to grow at 10% per annum, it could only be a few years before this higher price target is justified.

The post These 2 FTSE 250 stocks have tripled. I think they could double again appeared first on The Twelfth Magpie.

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• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Rupert Hargreaves owns no share 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.

The stock has recovered slightly since, but it’s still down 35%, excluding dividends, over the past 12 months. However, despite this poor performance, I think Microfocus has the potential to double in 2019. Here’s why. 

Steadying the ship 

Microfocus has run into problems integrating Hewlett Packard Enterprise’s software division, which it acquired for £6.6bn in 2017. After issuing a revenue warning in March, in July, management admitted that the merger is a year behind schedule. This did little to improve the group’s reputation. 

Since then, the business has repaired some damage by announcing the sale of one of its legacy divisions, Suse, for $2.5bn. A large chunk of the sale proceeds are being returned to investors via a special dividend in a few weeks, and Microfocus is also buying back shares. 

I think this could be just the start of Microfocus’ recovery. There haven’t been any further profit or revenue warnings since the beginning of last year, and management’s decision to return cash, rather than pay down debt, tells me it’s confident the business is heading in the right direction. 

Management has more at stake than most. Executive chairman Kevin Loosemore has more than £10m invested and management bonuses are tied to total shareholder return. 

Multi-bagger 

If Microfocus has managed to put most of the bad news behind it, I think the stock could rise substantially over the next 12 months. 

Right now the shares are trading at a forward P/E of 9.7, compared to the IT sector median of 18. If investor confidence returns, I see no reason why the shares can’t trade up to this level, implying an upside of 83% from current levels. Throw in the 5.6% dividend yield as well as the special payout, and it’s not unreasonable to suggest that Microfocus could double investors’ money in 2019. 

Charging ahead

If Microfocus is too speculative for you, you might be interested in Softcat (LSE: SCT).  

Unlike Microfocus, this company has gone from strength to strength over the past year. City analysts have consistently revised their earnings projections for the group higher since the beginning of 2018 and are now expecting year-on-year growth of 7.8%. And, according to a trading update issued by the firm today, it looks as if the software business is now on track to exceed these forecasts. 

In particular, the update notes: “As we approach the end of our first half, we are now materially ahead of where we expected to be at this stage of the year.“

It seems the cybersecurity business has seen a surge in demand for its services over the past six months, which is likely to be a result of the uptick in high profile cyber attacks in 2018. As the world becomes increasingly connected, the trend is only expected to continue and, as long as Softcat continues to meet customer demands, its revenue and income should feel the benefits. 

Unfortunately, the stock isn’t particularly cheap. It’s currently trading at a forward P/E of 19.2, although considering today’s update, this multiple is now out of date. Still, I think it’s worth paying a premium valuation for such a high-quality business. 

The post An unloved, undervalued FTSE 100 stock I think could double in 2019 appeared first on The Twelfth Magpie.

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• 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?

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Micro Focus. 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.

As a result, the bank now trades on a relatively low valuation. But could a FTSE 250 growth share which released an investor update on Wednesday offer stronger total return potential over the long run?

Growth potential

The FTSE 250 company in question is IT infrastructure technology and services provider, Softcat (LSE: SCT). It released a trading update which showed that customer demand has been strong across all of its segments during the first quarter of its financial year. It’s been able to deliver growth in revenue, gross profit and operating profit versus the same period of the previous year. It’s also been able to maintain momentum in terms of building scale and developing its offering. Its Irish office, which opened during the period, has started well.

An ability to increase customer numbers and gross profit per customer could lead to rising levels of overall profitability in the long run. It seems to be well-placed to deliver a growing bottom line, with a broad offering potentially catalysing its financial prospects. However, with the stock having a price-to-earnings (P/E) ratio of over 20, it may lack a margin of safety at a time when a number of FTSE 350 stocks are trading on low valuations after recent market falls.

Low valuation

In contrast, the Santander share price appears to be cheap at the present time. Following its aforementioned decline during the course of 2018, it now has a P/E ratio of around 7.5. This indicates that it has a wide margin of safety, and that investors may be pricing in potential challenges for the business in some of its key markets.

Of course, this isn’t a major surprise. Fears surrounding the outlook for the UK have been ramped up in recent months. The Brexit process could include further twists and turns, and this could disrupt the financial performance of a number of companies which operate in the UK. Similarly, on a global level, there are continued concerns about the impact of tariffs on imports. And with further US interest rate rises seemingly ahead as GDP growth remains high, the cost of servicing debt could increase and squeeze profitability across various regions and industries.

Despite the risks it faces, Santander appears to offer investment potential for the long run. It may experience a period of uncertainty, and further share price falls cannot be ruled out. But with what seems to be a wide margin of safety, it could have appeal for value investors, in my opinion.

The post Is the Santander share price a bargain, or should I buy this FTSE 250 growth stock? 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?

Peter Stephens 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.

If you’re looking to achieve higher returns than the FTSE 100, it can pay to look at investment opportunities outside the top 100 index. There are plenty of exciting mid-cap and small-cap stocks in the UK that have outperformed the FTSE 100 in recent years and look set to continue doing so in the years ahead. Here’s a look at one such growth stock that I believe has the potential to smash the footsie over the long term.

Softcat

Softcat (LSE: SCT) is a leading IT infrastructure company which provides organisations with business intelligence, cloud, data-centre, networking, and security solutions. The stock is a member of the FTSE 250 index and currently has a market capitalisation of £1.3bn.

There’s a lot I like about SCT from an investment perspective. The IT specialist has enjoyed strong revenue and earnings growth in recent years, with its top line rising from £596m in FY2015 to £1,082m for FY2018. Earlier this month, the group reported revenue growth of 30% for the most recent financial year, along with a 37% rise in earnings per share, demonstrating that it has considerable momentum at present.

Other financial metrics stand out as attractive too. For example, Softcat’s return on equity (ROE) is high and has averaged 47% over the last three years. Cash generation is also strong and this has enabled the group to reward shareholders with rapidly rising dividends, which is always a good sign, in my view. Debt is minimal, which is another plus.

Pullback

However, recently, investors have become concerned that growth at Softcat may be slowing down. This is because last month, Chief Executive Graeme Watt advised that while the group was confident of achieving further profitable growth in 2019 and that the first 10 weeks of the year had been “encouraging”, growth wouldn’t match the “exceptional” year it has just had. As a result, the shares have fallen from around 800p at the start of October, to around 650p today. So what should investors make of this fall? Is it a buying opportunity or is the slowing growth a concern?

Long-term buy 

Personally, I see the recent pullback as a buying opportunity for long-term investors. I’ve got the stock on my own watchlist and I’m tempted to begin building a position at current levels.

Of course, we can’t rule out further share price weakness, especially if rival Computacenter’s recent trading update is anything to go by. With so much Brexit uncertainty, growth at Softcat could be a little softer in the short term as firms hold off on IT spending, and this could scare off shorter-term investors.

Yet given the essential IT services it provides, the group looks very well placed to keep growing in the long term, in my opinion.

Currently, the shares trade on a forward-looking P/E ratio of 22 which I don’t think is too expensive, given the group’s long-term growth prospects. That said, if I can buy it cheaper than that if the market wobbles again, I’d be even happier.

The post Looking for growth? I think this FTSE 250 stock could smash the FTSE 100 over the next decade 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?

Edward Sheldon 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.

Two particular stocks from the FTSE 250 — Softcat (LSE: SCT) and BBA Aviation (LSE: BBA) — saw their share values fall 20% or more in the last month. Unjustifiably so, in my opinion, but on the plus side, they leave investors the opportunity to pick up a bargain.

Special dividends keep on coming

Softcat’s October drop was somewhat perplexing given that it released ultra-positive financials during that time.

The IT infrastructure specialist reported that revenues boomed 30% in the 12 months to July, to £1.08bn, as adjusted operating profit rose 37%, to £70.5m.

And there was plenty for dividend chasers to cheer again as well. As I tipped previously, Softcat was happy to keep shelling out special dividends on account of its bulging bottom line and surging cash flows (which pushed net cash £11.2m higher year-on-year, to £72.8m). It paid a 15.1p per share supplementary reward for last year, up from fiscal 2017’s 13.5p payout.

With the tech titan also raising the ordinary dividend to 8.8p, from 6.1p previously, the total dividend rung in at 23.9p, up 22% year-on-year.

And given the rate at which Softcat is likely to continue winning business, I’m expecting dividends to keep on shooting skywards. Market conditions are still going from strength to strength as companies invest more and more into fast-growing areas like security, digitisation, and the Internet of Things.

And crucially, because the FTSE 250 firm is not reliant on one or two customers to drive its bottom line, Softcat has supreme earnings visibility. To illustrate this fact, the business advised that its top 20 clients contributed ‘only’ two-thirds of total sales last year. Naturally, this puts it in better shape than many to have the confidence to keep raising dividends at an impressive pace.

Softcat currently carries a forward P/E ratio of 21.8 times, representing a significant discount to the company’s historic highs. And given the rate at which sales are still growing, I reckon this makes the company a bargain today.

Flying high

BBA Aviation also had an October to forget, as existing pessimism surrounding the firm following August’s half-year update continued. Back then, the aviation support business declared that a series of one-off costs had pushed pre-tax profit 11% lower from January to June, to $76.2m.

I was more interested in news that revenues jumped 14% in the first half to $1.02bn, a result that affirmed the company’s strategy of supercharging its global FBO network through ambitious acquisitions. With the strong US economy supporting steady growth in the number of business aviation flights, I’m confident that business at BBA should continue to surge.

Right now the flying ace sports a low, low forward P/E ratio of 13.9 times, and a bumper corresponding dividend yield of 4.5%. It’s a brilliant buy for investors seeking bright profits and dividend growth both now and in the years to come, in my opinion.

The post Have £3,000 to invest? Here are 2 FTSE 250 dividend stocks I consider bargains after October’s 20%+ falls appeared first on The Twelfth Magpie.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended BBA Aviation. 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.