I tend to avoid buying stock in newly-listed companies. The disastrous Deliveroo IPO showed that IPOs are often priced too high, leaving holders under water from the off. But there are exceptions. The  big jump seen in the Victorian Plumbing (LSE: VIC) share price after its Tuesday IPO showed that.

What is Victorian Plumbing?

Founded in a shed in 1999 by Mark Radcliffe, Victorian Plumbing has grown to become a major online retailer. It sells 24,000 branded and in-house-designed bathrooms and accessories. Selling to both the public and trade customers, the company now operates a 109,000 square foot warehouse in Skelmersdale, Merseyside. It also has a showroom in Formby and a ‘digital growth hub’ in Birmingham.

What most sticks out to me about VIC, however, is that its £850m valuation on admission made it the biggest company to IPO on the Alternative Investment Market (AIM). Thanks to a flurry of trading over the last two days, this market cap has already charged ahead of the £1bn mark!

Victorian Plumbing’s share price sat just below 336p as markets closed yesterday. That’s already a great return for those institutional investors that bought in at 262p a pop.

So, would I buy it?

Would I buy at the current price? Quite possibly. There are many things I like about this company. 

For one, it’s already generating serious money. Revenues of almost £209m were logged in the year to September 2020. This arguably makes the investment case far less risky compared to the average AIM-listed blue-sky stock.

Another attraction is the online-only business model. Multiple UK lockdowns have only served to accelerate the structural shift to digital shopping. VIC is clearly well placed to capitalise on this.  

The growth potential is also pretty compelling. By placing more emphasis on attracting trade customers and growing its European presence as planned, I think Victorian Plumbing might replicate the success of £5bn-cap kitchen supplier Howden Joinery in time.

Knowing that its founder will still have ‘skin in the game’ is another positive. True, Mark Radcliffe’s share ownership will reportedly drop massively from 72% to 46% post-IPO. However, his interests should still be firmly aligned with retail investors like me. Incidentally, it’s worth noting that heavyweights such as JPMorgan are also on the register. 

Priced in?

Nevertheless, there’s no guarantee that the Victorian Plumbing share price will keep rising. Aside from a lack of track record on the market, one needs to bear in mind that the firm is listing at a time when the home improvement industry is conveniently booming. Companies like B&Q owner Kingfisher and Travis Perkins are just two examples of those that have reported strong trading over the last year or so.

Whether this lasts is difficult to say. I certainly wouldn’t be surprised if revenue growth at VIC does moderate over the current financial year as we spend our money on other things post-pandemic. As such, I do question whether now is the right time to snap up its shares. Let’s not forget that every transaction always involves someone who thinks it’s actually time to sell.

Watchlist bound

Victorian Plumbing grabs my interest in a way that other recent IPOs have not. Even so, I’m content to wait for the initial excitement to die down before deciding whether to take a stake. Today, it’s on my watch list. 

The post The Victorian Plumbing share price has soared since its IPO. Should I buy? 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 Howden Joinery 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.

Clearly, there could be uncertainty ahead for the index. It is more dependent on the UK economy than the international growth outlook, which could mean that Brexit continues to weigh on investor sentiment.

In the long run, though, a number of mid-cap stocks could have impressive income outlooks. Here are two prime examples that also appear to offer wide margins of safety.

Travis Perkins

The first quarter update released by Travis Perkins (LSE: TPK) showed strong performance in difficult operating conditions. The company’s like-for-like sales growth was 7.3%, while its total sales increased by 5.4%. Its focus on customer service, coupled with a weak comparator from the previous year, boosted its financial performance.

The company’s online consumer brand, Toolstation, performed well. Its sales growth of 25% was the standout performer of the business, while its Merchanting sales growth of 10.6% was also impressive. Wickes has also experienced relatively high demand, with its core DIY and showroom categories boosting its overall sales growth to 10.5%.

Travis Perkins currently trades on a price-to-earnings (P/E) ratio of 13.5. Its bottom line is expected to grow by 5% this year, which would be a strong performance given the challenging operating conditions that it faces. With a dividend yield of 3.2% from a payout that is covered 2.3 times by profit, an improving income outlook could be ahead. As such, now could be the right time to buy a slice of the company.

Bellway

Also facing an uncertain operating outlook is FTSE 250 housebuilder Bellway (LSE: BWY). The housebuilding sector has been volatile in the last couple of years, with underlying growth being strong but investor sentiment being highly changeable.

Bellway is expected to post earnings growth of 5% in the current year. This would be an impressive result at a time when house prices in a number of regions are under pressure, and consumer confidence is at a low ebb.

The company, of course, is being buoyed by low interest rates and the Help to Buy scheme. Both of these catalysts are expected to remain in place over the medium term, and may offset wider fears surrounding the prospects for the housing market as Brexit moves ahead.

With the stock having a dividend yield of 4.8% from a payout that is covered over three times by profit, it appears to have a bright income investing outlook. Its P/E ratio of 7 is relatively low – even for the housebuilding sector. Therefore, investors who are able to take a long-term view may be able to generate high income returns, as well as capital growth.

The post 2 cheap FTSE 250 dividend stocks I’d buy for my Stocks and Shares ISA today appeared first on The Twelfth Magpie.

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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.

I’m not convinced. I think it’s getting harder to make money from buy to let. At the same time, I can see attractive stock market opportunities that provide exposure to the property market.

Why not buy-to-let?

Owning a home to live in is very different to running a house as a profitable rental business. With prices near record highs in many areas of the UK, homes aren’t cheap. Mortgage rates are at record lows too, so borrowing costs only seem likely to rise in the future. On top of that, maintenance and repair costs can eat into your profits.

Buy-to-let investors often lose sight of the need to turn a profit each year. If you can’t do this, then you’re paying to rent your house out, in the hope that one day you might sell it for more than you paid. That sounds a bit risky to me.

Profit from repair work

My first stock pick is builders’ merchant group Travis Perkins (LSE: TPK). This company is taking advantage of the ‘do it for me’ trend to focus on businesses which sell to tradesmen and building firms, rather than retail customers.

The Travis Perkins share price is up by 10% as I write, after the company said its sales rose by 4.8% to £6,741m last year. Pre-tax profit was also higher, climbing by 1.2% to £347m, excluding certain one-off costs.

As part of a plan to simplify the business, chief executive John Carter hopes to sell the group’s plumbing and heating business this year. This includes brands such as City Plumbing and PTS.

My view: The uncertain outlook for the UK economy is a risk. But Travis Perkins appears to be trading well and profits are expected to remain stable. The shares are priced at 12 times forecast earnings and offer a 3.6% yield. I’d be happy to buy.

Time to buy London?

My second stock might be of particular interest to buy-to-let landlords. Housebuilder Berkeley Group Holdings (LSE: BKG) specialises in building homes in London and the South East.

The group is known for its high profit margins and for the good market judgement of founder and chairman Tony Pidgley.

London property prices have fallen in some areas over the last year, with some local falls of more than 10%. But I suspect the market would stabilise quickly if a Brexit deal is secured over the next couple of months.

In any case, Berkeley’s trading appears to have remained strong and the company has been open about its profit expectations.

During the six months to 31 October, the company reported a pre-tax profit of £401m, down from £540m last year. However, controlled spending on new projects helped to lift the group’s net cash balance from £687m to £860m during the half year. And the company’s order book remained healthy, at £1.9bn.

Berkeley expects to return £280m per year to shareholders until 2025. Some of this cash may be used for share buybacks as well as dividends, but analysts are forecasting a dividend yield of 4% for this year and 4.9% next year.

My view: Based on the group’s strong track record, I’d be happy to tuck a few of these away at this level.

The post Forget buy-to-let. I’d buy these property dividend stocks instead appeared first on The Twelfth Magpie.

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Roland Head 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.

At the beginning of November, the company announced that it was planning to issue €450m of high-yield bonds to refinance some of its existing bank facilities, used to fund a series of acquisitions over the past few years. 

Investors wanted to know why management would want to refinance bank facilities with more expensive high-yield bonds. Rumours began to circulate that the only reason why the company would damage its finances in this way is because management had fallen out with banking partners, which could hint at further problems in the business.

U-turn 

As investors rushed for the hills, the company pulled this bond deal and executive chairman Geoff Wilding pinned the share price collapse primarily on unclear communications. Since then, the business has been in damage-control mode, trying to reassure investors that its balance sheet can support Victoria and the group does have the full support of its banking partners.

Half-year results from the company, which were published today, show net debt at 29 September of £342.7m, representing 3.09x earnings before interest tax depreciation and amortisation (EBITDA). That’s significantly above what I’d be comfortable investing in.

Usually, I overlook any companies with a net-debt-to-EBITDA ratio of more than 2x. The half-year report also says the firm may consider revisiting its bond issuance plan in future “if appropriate.“

So overall, even though the city is expecting Victoria to report earnings per share (EPS) growth of 80% for the current financial year, leaving the stock trading on a relatively attractive PEG ratio of 0.6, I’m not buying because I’m worried about the high level of debt the company has taken on recently to fund acquisitions.

Low-cost dividend 

In my opinion, FTSE 250 building firm, Travis Perkins (LSE: TPK) seems to be a better buy. 

Unlike Victoria, this company isn’t struggling with a large pile of debt. Net gearing was just 17.4% at the end of the last financial period. On top of this, the stock is changing hands for a relatively undemanding 10.4 times forward earnings, and supports a dividend yield of 4.3%, which is comfortably covered 2.3 times by EPS.

Unfortunately, Travis Perkins has lost around a third of its value already in 2018. Investors, it seems, are concerned about the company’s exposure to the UK consumer and the domestic housing market, both of which would suffer significantly in any economic downturn. 

However, so far, group sales have remained robust with like-for-like sales increasing 4.1% during the third quarter. Obviously, at this point in time it’s impossible to tell how the company will fare over the next few years as Brexit unfolds. But I believe that the group’s strong position in the market, coupled with its portfolio of well-known brands, will help it weather any storm and come out the other side in a stronger position than many of its peers.

The post Should I buy this FTSE 250 turnaround after falling 30% in a year? appeared first on The Twelfth Magpie.

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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.

Like-for-like sales rose by 4.1% during the quarter, leaving the year-to-date figure unchanged at 4.2%. However, the news wasn’t all good. The DIY sector remains “very challenging for Wickes”, which is the group’s main consumer brand. Like-for-like consumer sales fell by 4.2% during the period.

The engine driving the group’s performance at the moment appears to be demand for plumbing and heating supplies. Like-for-like sales in this division have risen by 18.2% so far this year, and were 14.8% higher during the third quarter.

What does it mean for shareholders?

The firm’s shares have already lost around one third of their value this year. Adjusted pre-tax profits fell by 4.6% to £157m during the first half after the firm said weak trading at Wickes had hit profits.

This is obviously a business that would suffer during a recession. But I am attracted to its strong portfolio of brands and significant scale — annual sales are over £6.6bn.

Travis Perkins’ shares now trade on a forward price/earnings ratio of 9.5, with a prospective yield of 4.7%. The dividend should be covered 2.3 times by adjusted earnings, giving some downside protection.

That’s a tempting valuation, but it seems likely to me that market conditions will remain tricky in the UK. This is likely to make life harder for Travis Perkins, so I don’t see any compelling reason to buy the shares today.

One stock I would buy

If you’re looking for companies you can safely buy and forget for 10 years, one stock I would consider is food-to-go retailer Greggs (LSE: GRG).

Whereas Travis Perkins has a lot of money tied up in depots, warehouses and inventory, Greggs does not. The difference shows. Both companies have operating margins between 5% and 8%, but Greggs generated an impressive return on capital employed last year of 23%. The equivalent figure for Travis Perkins was just 9%.

Greggs’ profitability is one of the reasons why I’m attracted to this well-run retailer. Chief executive Roger Whiteside has steadily expanded the group’s food offering in recent years, widening its customer base.

Coffee, pizza and healthy options are all on the menu these days, and the firm is experimenting with ways to capture evening trade as well as breakfast and lunch.

A more defensive choice

Greggs’ business is more cyclical than a supermarket. Trade could suffer during a recession. But the low cost of popular items suggests to me that many customers would still drop in for a snack if they were passing. I don’t think we’d see a serious collapse.

For now, trading remains strong. Third-quarter sales rose by 7.3% and the retail slump means that rents are falling on the group’s high-street units.

The shares aren’t cheap, trading on a 2018 forecast price/earnings ratio of 18. But the 2.8% yield should be covered by surplus cash and I’m attracted to the group’s proven profitability.

In my view, this business is an attractive pick for investors wanting exposure to UK consumers. I’d be happy to buy these shares today and tuck them away for a decade.

The post Have £2,000 to invest? One FTSE 250 dividend stock I’d buy for the next decade (and one I wouldn’t) appeared first on The Twelfth Magpie.

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Roland Head 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.

It’s a Travis-ty

The £3.19bn FTSE 250-listed stock is down another 1.52% despite today’s Q1 trading update reporting a “solid start” to 2018. Like-for-like sales grew 3% for the three months to 31 March, with total sales up 2.4%. Its plumbing and heating division was particularly strong, with sales ratcheting up 19.7%. 

Travis Perkins reported resilient underlying trading, despite wintry weather in February and March, and said that its cost efficiency drive should offset difficult market conditions. Group CEO John Carter said it was still on course to match 2018 expectations even though “mixed trading conditions in our markets are expected to continue in the near-term”.

Feeling Perkins

It is those mixed trading conditions that worry markets and coincidently, today’s GDP figures show a construction slowdown, amid rising insolvencies and lack of confidence. This may be further weighing on Travis Perkins’ share price.

However, winter is over, and the stock trades at a knock-down forecast valuation of just 11.9 times earnings. Earnings per share (EPS) are expected to be flat this year, but to rebound 6% in 2019, when hopefully Brexit uncertainty will finally be drawing to an end. The forecast yield is 3.5%, with excellent cover of 2.4. My Foolish colleague Peter Stephens recently called Travis Perkins a risky buy, and that looks right to me.

Kier we go

The outsourcing sector is beset by fear and loathing following the high-profile collapse of Carillion and the precipitous decline of Capita. If you believe that it pays to get greedy when others are fearful, you should take a closer look at support services firm Kier Group (LSE: KIE).

The £1bn FTSE 250-listed construction, services and property group was caught up in the recent sector sell-off, its share price down 22% in the last year, yet its plight is far from parlous. It has a strong order book, with 100% forecast revenues from its Construction and Services division secured to year-end on 30 June, and more than 65% secured to June 2019. As my Foolish colleague Paul Summers points out here, the division’s total order book now sits at £9.5bn, with a juicy £3.5bn pipeline in its Property and Residential Divisions.

Kier royale

This provides good future earnings visibility on top of strong recent earnings, which saw underlying first-half revenue jump 8% to £2.15bn, and pre-tax profit climb 5% to £48.8m. This is a solid performance, especially when you take into account  the concerns afflicting the construction industry.

City forecasters seem positive, predicting that EPS will rise 10% in the year to 30 June, then repeat the trick by rising another 10% the year after. Yet recent share price slippage has trimmed Kier’s valuation to just nine times earnings. That should make you sit up and take notice, and so should this: the forecast yield is 6.6% for 2018, with dividend cover of 1.7, rising to 6.8% in 2019. Throw in the group’s focus on financial and operational discipline, and you have a highly tempting growth and dividend combination.

The post 2 FTSE 250 growth and dividend bargains I’d buy with £2,000 today 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 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.

Looking ahead, further challenges may be on the horizon. However, could it now offer good value for money alongside another stock which is also experiencing a difficult period?

Uncertain outlook

Having reported a 25% fall in earnings in the 2017 financial year, 2018 does not appear to be improving for Safestyle. It continues to experience weak demand from consumers who have seen their disposable incomes fall in real terms in recent months. Alongside continued pressure from a new market entrant, this has meant that demand for its services has been below previous guidance.

Sensibly, the company is seeking to retain capital in case such conditions continue over a prolonged period. Therefore, it has cancelled the final dividend for 2017, while also undertaking a strategic review. Alongside this, it has appointed a new Chairman and will seek to refocus its efforts on becoming more efficient and delivering improved performance.

Clearly, Safestyle is now set to deliver a fall in earnings versus the previous year. However, it trades on a price-to-earnings (P/E) ratio of just 4 using last year’s earnings. As such, it appears to offer excellent value for money, although its difficult trading conditions could last for some time.

For investors who are generally upbeat about the UK economy, there could be a value opportunity on offer. Pressure on household incomes is falling due to lower inflation, and this may provide a boost for the company. But with its share price in freefall, Safestyle is likely to be of interest to only the least risk-averse of investors at the present time.

Turnaround potential

Also experiencing a difficult period is support services company Travis Perkins (LSE: TPK). The business has recorded two consecutive years of declining profitability, and is set to report further falls in its bottom line this year. Part of the reason for this is a general slowdown in demand across its key markets, with the UK economy’s growth rate having been downgraded since the EU referendum.

However, with Travis Perkins seeking to become more efficient, it is expected to return to positive growth in the current year. Certainly, growth of 5% may be relatively modest. But it would show that the business has underlying strength and is capable of performing well even in difficult market conditions.

Since the stock trades on a P/E ratio of around 13 and has a dividend yield of 3.7%, it appears to offer good value for money. With dividends being covered 2.3 times by profit, it could prove to be a strong income stock. Therefore, while potentially risky, now could be the right time to buy it.

The post Does the Safestyle share price’s 20% fall make the stock a bargain? appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
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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.

Aldi and Lidl have famously changed the game, their emergence into the mainstream more than a decade ago showing shoppers strained by the 2008/09 financial crisis that they could load up their baskets for less without necessarily having to compromise on quality.

These chains remain dedicated to expanding at a breakneck pace to keep customers flocking from Tesco, which once claimed £1 out of every £7 spent in the UK back in its heyday.

Just this month Lidl announced that it was creating 700 new jobs, as well as plans to open 50 new stores and refurbish 30 existing outlets, by the close of the year. This followed news at the turn of the year that the German disruptor was planning to build new warehousing facilities outside Luton, Bedfordshire to service its stores around London.

Cyberspace strains

But the competition isn’t only intensifying for Tesco’s bricks-and-mortar operations, of course. Amazon, for example, has big ambitions to build its position in the online grocery market, as illustrated by its $1bn takeover of video doorbell and camera manufacturer Ring this week. The move is seen as an attempt by the US giant to boost its delivery capabilities by dropping off goods, like perishable items such as fruits and vegetables, directly inside customers’ homes.

Clearly Tesco has a lot of work in front of it to keep its recent sales uptick moving along, even if City analysts are confident it can battle through these choppy waters to follow earnings growth of 56% in the year to February 2018 with rises of 26% and 23% in fiscal 2019 and 2020 respectively.

I am not convinced however, and believe the tough trading backdrop caused by falling consumer spending power and the aforementioned competitive pressures leaves these projections looking a tad giddy.

In fact, a forward P/E ratio of 16 times looks a bit too toppy in my opinion in light of these factors. I reckon there are many superior FTSE 100 growth stocks to buy today.

Falling down

Travis Perkins (LSE: TPK) is another London-quoted retailer in trouble today.

Indeed, the builders’ merchant found its share price diving 9% in Wednesday business on the back of fresh, frightful financial news, meaning the share is now dealing at five-year lows around £13.

The FTSE 250 business announced that, although revenues rose 3.5% in 2017 to £6.4bn (or up 3.3% on a like-for-like basis), adjusted pre-tax profits slumped 10% last year to £343m.

Chief executive John Carter made a rather sobre assessment of the Travis Perkins performance, commenting: “2017 was a challenging year for the group, with continuing uncertainty in our end-markets, and declining consumer confidence throughout the year.” And the company now expects to make no profits improvement at all in 2018, it said, which comes as no surprise given the ongoing problems at its Plumbing & Heating division.

On the back of this guidance, broker expectations of a 5% earnings rebound this year, and a 7% advance in 2019, are looking a little flimsy right now. Despite its low forward P/E ratio of 11.3 times, I for one am not tempted to invest today.

The post Tesco plc isn’t the only retailer I’d sell straight away appeared first on The Twelfth Magpie.

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Royston Wild has no position in any of the shares mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon. 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.

A difficult period

Since the release of half-year results by Mears in August, trading conditions for its Housing division have continued to be tough. Many of its clients have focused on ensuring that their portfolios are safe and compliant, which has resulted in a softening of revenues for the current financial year.

As well as this, the company is expected to report an exceptional item of up to £16.5m in the current financial year. This relates to the disposal of its Mechanical and Electrical division in 2013, which included an entity operating in the UAE that had a number of contractual guarantees from the company. They remain in place, and a number of them have been called. As such, the company is required to settle funds against the contingent liabilities.

Although there is a realistic expectation that the funds will be recovered, they will be provided for in the company’s current financial year. This could cause the performance of the business to disappoint, which may mean investor sentiment in the stock remains weak over an extended period of time.

While the performance of the company’s Care division has been in line with expectations and its bid pipeline remains strong, its share price could disappoint in the short run. As such, there may be superior investment opportunities available elsewhere.

Dividend potential

Operating within the same sector as Mears is Travis Perkins (LSE: TPK). The building products specialist is experiencing a challenging year, with its bottom line forecast to fall by 6%. Much of this is due to weakness in the UK economy, with Brexit seemingly causing confidence across the sector to come under pressure. As such, its share price could be volatile in the near term.

However, in the long run Travis Perkins could deliver improved performance. It is expected to return to positive growth next year, with its bottom line expected to rise by 4%. It trades on a price-to-earnings (P/E) ratio of just 13, which suggests that it could offer good value for money.

Furthermore, the company has a dividend yield of 3%. While not the highest in the FTSE 350, it could rise at a rapid rate. Dividends are currently covered 2.5 times by profit, which suggests that they could rise at a much faster pace than earnings over the medium term without jeopardising the company’s financial standing. As such, and while its outlook is highly uncertain, Travis Perkins could be worth buying for the long term.

The post Why I wouldn’t buy Mears Group plc as shares crash on trading update appeared first on The Twelfth Magpie.

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• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• 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?

Peter Stephens 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.

Out-and-out cyclical stocks tend to rise and fall with the undulations of the macroeconomic environment and we can never be sure when the next cyclical plunge in profits and share prices will arrive.

Hidden nasties

I’m nervous about holding the FTSE 100 because the cyclicality is not in plain view. With 100 or so stocks jumping up and down within a tracker investment, it’s hard for me to keep tabs on what factors could be affecting the price. If I did invest in a FTSE 100 tracking fund, I’d treat the whole thing as a cyclical trade and only invest when the index is on the floor in the hope of riding the next cyclical up-leg. Then I’d sell when the index is once again near its highs.

Rather than the FTSE 100, I’d go for a firm that is performing well, such as Travis Perkins (LSE: TPK), which updated the market today. As well as trading under its own name, it has a stable of brands including well-known names such as Wickes, City Plumbing, PlumbNation, BSS and PTS. The theme of today’s third-quarter update was that “trading is on track despite a challenging market backdrop.”

Inflation-driven sales increases

Third-quarter sales came in 3.5% higher than a year ago with like-for-like sales up 4.1%. For the year so far, sales lifted 3.3% with like-for-likes 3.4% up. However, the gains in like-for-like sales came from price increases driven by inflation with sales volumes coming in flat. That said, the company reckons it saw ongoing strong growth within businesses in its Contracts division and “significant” improvement in sales performance within the Plumbing & Heating division.

Chief executive John Carter said of the outlook that “trading conditions in our markets continue to be mixed, with consumer discretionary spending under pressure from rising inflation and on-going uncertainty in the UK economy.” Yet despite this apparently harsh trading environment, he assured us that the directors have confidence in the long-term fundamental drivers of the firm’s markets. And he said “this underpins our plan to invest in our businesses to improve our customer propositions and extend our competitive advantage.”

A good financial record

Although cautious on the market outlook, Mr Carter told us that the firm is on course to meet full-year expectations. According to City analysts following the firm, that means a decline in earnings per share of 5% for the current year followed by a 5% rebound during 2018, which looks like a potential steady-as-she-goes immediate outcome.

The firm has a good financial record and has lifted its dividend by 80% over the past four years and further dividend increases look set to arrive this year and next. Meanwhile, at today’s share price around 1,503p, the forward dividend yield runs just over 3.2% and those forward earnings should cover the payment around two-and-a-half times.

Assuming the economy is not about to fall off a cliff, I think Travis Perkins looks more attractive than a FTSE 100 tracker right now. 

The post 1 FTSE 250 stock I’d buy instead of a FTSE 100 tracker appeared first on The Twelfth Magpie.

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Kevin Godbold 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.