Vodafone

Vodafone (LSE:VOD) is a British multinational telecommunications company. It predominantly operates services in Asia, Africa, Europe, and Oceania. The company runs at least some form of operations in over 150 countries.

Following lacklustre numbers from its Q1 trading update, the share price dropped by 5%. It has stayed there since. Despite that though, it’s a sign of confidence when a high-ranking director purchases shares. And this week, Vodafone’s Chairman decided to reinvest his dividends into buying more Vodafone shares.

• Name: Jean-François van Boxmeer
• Position of director: Chairman
• Nature of transaction: Dividend shares
• Date of transaction: 10 August 2022
• Amount bought: 9,975 @ £1.21
• Total value: £12,069.75

Deliveroo

Deliveroo (LSE: ROO) is a British online food delivery company. It operates in over 200 locations across the UK, and is the second-biggest food delivery platform in the country. It also operates internationally with operations in France, Singapore, Australia, and many more.

In this week’s transaction, a director exercised his option to redeem stock compensation. Following this, he opted to sell approximately half of the shares received to cover tax liabilities. That being said, it’s worth noting that this is a monthly occurrence from the company’s CFO. As such, these actions shouldn’t impact investor sentiment surrounding the stock. It’s worth pointing out, however, that the sale of these shares dilute shareholders’ value. This is because there are now more Deliveroo shares floating on the market.

• Name: Adam Miller
• Position of director: Chief Financial Officer
• Nature of transaction: Award shares
• Date of transaction: 15 August 2022
• Amount vested: 83,400 @ £0.96
• Total value: £80,247.48

• Name: Adam Miller
• Position of director: Chief Financial Officer
• Nature of transaction: Sales of shares to cover tax liabilities
• Date of transaction: 15 August 2022
• Amount sold: 40,402 @ £0.95
• Total value: £38,381.90

FirstGroup

FirstGroup (LSE: FGP) is a British multi-national transport group. The FTSE 250 firm is the leading transport operator in the UK and North America. It is widely known for being a provider of public transport, especially buses in the UK.

Rather surprisingly, its shares have managed to outperform the wider UK market index this year. But after the share price took an 11% hit last week, a couple of large director dealings were carried out. The first involves a non-executive director purchasing a substantial number of shares. But what really caught my eye were the conditional share awards that could be awarded to FirstGroup’s CEO and CFO. This should shore up investors’ confidence in the stock, as the group’s management will have to perform and meet investors’ expectations in order for these award shares to vest.

• Name: Sally Cabrini
• Position of director: Non-Executive Director
• Nature of transaction: Purchase of shares
• Date of transaction: 17 August 2022
• Amount vested: 10,000 @ £1.15
• Total value: £11,482

• Name: Graham Sutherland
• Position of director: Chief Executive Officer
• Nature of transaction: Award shares
• Date of transaction: 18 August 2022
• Amount vested: 972,590 @ Nil
• Total value: N/A

• Name: Ryan Mangold
• Position of director: Chief Financial Officer
• Nature of transaction: Award shares
• Date of transaction: 18 August 2022
• Amount vested: 1,003,226 @ Nil
• Total value: N/A

Types of Shares

To provide context, there are a few types of shares that can be purchased by directors. Some directors opt to purchase shares via the open market. Having said that, directors also have the option to purchase and receive shares via a share incentive plan (SIP).

A SIP is an employee plan for companies within the UK to flexibly award shares to employees. Publicly listed companies normally exercise this option because it’s tax-efficient for both the employer and its employees.

In this week’s set of director dealings, a few types of SIPs were exercised. For starters, Vodafone’s Chairman opted to purchase more Vodafone shares from the dividends he received from his current shares.

On the other hand, Deliveroo’s CFO decided to exercise the option of redeeming his restricted stock units. These are a form of award shares which allow for directors to redeem shares at a later date, as either as part of their salary or based on meeting performance obligations.

FirstGroup’s CEO and CFO were awarded shares as well, but these will only be vested once performance targets are met. In this case, more than 1.5m shares are up for grabs between the two directors under the operator’s long-term incentive plan (LTIP). The LTIP award will normally vest on the third anniversary of the date of award, subject to satisfaction of performance conditions and continued employment. The award is also subject to an additional holding period of two years from the date on which the award vests.

Bus and rail operator

As a quick reminder, First Group is one of the largest transport providers in the UK, with operations in North America too. It employs over 30,000 people in the UK alone to support its operations that carry 880,000 passengers up and down the country via its bus and rail offerings each day.

So what’s the current state of the First Group share price? Well, as I write, the shares are trading for 132p. At this time last year, the stock was trading for 85p, which is a 55% return over a 12-month period. More recently, the share price dropped to 88p in the first week of March. This means they have risen 50% to current levels in approximately five months.

Risks to note

Current macroeconomic headwinds such as soaring inflation, rising costs, and labour shortages in the travel sector could have a material impact on First’s performance and returns.

Next, First Group is currently at the mercy of potential industrial action here in the UK due to disputes over wages. This could see operations affected, as well as its balance sheet if it increases wages as trade unions are demanding. This is a key potential development I will keep an eye on.

The bull case and what I’m doing now

One of the biggest advantages that First Group has compared to competitors, and one of the things I like about it best, is its integral position in the UK’s infrastructure. It possesses a wide network of operations across bus and rail, and these operations play a vital part in getting people from A to B.

Next, First Group’s recent performance has been positive, although I do understand past performance is not a guarantee of the future. Before the pandemic, the business was thriving. Nearly two years of disruption hurt its balance sheet and investment viability. For the full year ended 26 March 2022, it reported that net debt had decreased, it sold some of its North American operations to streamline the business and return money to shareholders, and it continues to focus on cutting carbon emissions in its fleet. More tellingly, passenger numbers continue to creep up towards pre-pandemic levels.

Finally, First Group announced that it would pay a small dividend based on 2022 results. The dividend yield is less than 1%. However, I am buoyed by any dividend due to the position the company found itself in just two years ago at the height of the pandemic. Of course, dividends are never guaranteed and can be cancelled.

Overall, I like First Group shares and would buy the shares for my holdings. Based on recent results, I can understand why the First Group share price rallied after the market dip in March. Its position in the UK transport network, coupled with its profile and presence, make it an attractive proposition for me.

Ashtead

Ashtead (LSE: AHT) is a British industrial equipment rental company. It has networks in the UK, US, and Canada. It also trades under the name of Sunbelt Rentals. The industrial firm is expected to report earnings for its financial year 2022 on Tuesday, 14 June 2022. The earnings preview indicates a positive trend in both its top and bottom lines as it recovers from its pandemic woes.

• Market cap: £17.5bn
• Price-to-earnings (P/E) ratio: 18
• Dividend yield: 1.1%

• Earnings per share estimate (FY 2022): £2.47
• Earnings per share (FY 2021): £1.56
• Total revenue estimate (FY 2022): £6.47bn
• Total revenue (FY 2021): £5.0bn

Halma

Halma (LSE: HLMA) is a British global group consisting of safety equipment companies. These firms make products for hazard detection and life protection. The FTSE 100 group is expected to report earnings for its financial year 2022 on Thursday, 16 June 2022. The earnings preview indicates slight growth from the previous year.

• Market cap: £8.0bn
• P/E ratio: 30
• Dividend yield: 0.9%

• Earnings per share estimate (FY 2022): 63.1p
• Earnings per share (FY 2021): 58.7p
• Total revenue estimate (FY 2022): £1.5bn
• Total revenue (FY 2021): £1.3bn

FirstGroup

FirstGroup (LSE: SSE) is a British multi-national transport group. The company operates transport services in the UK. The transport company is expected to report earnings for its financial year 2022 on Tuesday, 14 June 2022. Earnings preview indicates a drop in revenue and a return to unprofitability.

• Market cap: £1.0bn
• P/E ratio: 2
• Dividend yield: –

• Earnings per share estimate (FY 2022): -0.4p
• Earnings per share (FY 2021): 2.4p
• Total revenue estimate (FY 2022): £4.52bn
• Total revenue (FY 2021): £6.8bn

• Ashmore Group has a compound annual EPS growth rate of 7.7%
• FirstGroup’s bus operations are heading back towards pre-pandemic levels
• These two companies could provide growth over the long term

The FTSE 250 is full of interesting stocks that have delivered growth over the years. I’ve once again returned to the index to find two more companies to add to my portfolio. My plan to to hold shares in these businesses for the long term, because I firmly believe that this strategy yields the best results. Why do these companies fit the bill? Let’s take a closer look.

A FTSE 250 asset manager

The first firm is an asset manager specialising in emerging markets, Ashmore Group (LSE:ASHM). Much of its holdings are based in Asia. Investing in a company of this sort is a double-edged sword, because when panic hits the markets, emerging market assets are usually among the first to fall. This is caused by their higher risk classification. In rising markets, however, this asset class can do very well indeed. Ashmore currently trades at 230p, down 41% in the past year.

For the years ended June 2017 to 2021, company revenue increased from £257m to £292m. What’s more, profit before tax rose from £206m to £282m. Unsurprisingly, therefore, earnings per share (EPS) grew from 25.07p to 36.4p.

By my calculation, this results in a compound annual EPS growth rate of 7.7%. This is both strong and consistent. It should be noted, however, that past performance is not necessarily indicative of future performance.

In a trading update for the three months to 31 December 2021, assets under management decreased from $91.3bn to $87.3bn. While the company has focused on acquiring oversold assets during the recent stock market correction, there is always the further downside market risk that could be negative for the Ashmore share price.

A travel recovery stock

The second stock I’m buying for the long term is FirstGroup (LSE:FGP), a UK and North American operator of trains and buses. It currently trades at 107p, up 17.7% in the past year.

For the fiscal years 2020 and 2021, revenue was flat at about £4.6bn. However, profit before tax in 2021 was £75.2m, a massive improvement from the £388m loss recorded in 2020. As my Motley Fool colleague James McCombie recently reported, the sale of US segments in 2021 bolstered the company’s balance sheet. 

In a recent trading update for the three months to 31 December 2021, bus operations climbed to 70% of pre-pandemic levels. This was about 75% in parts of England. This in encouraging news, because it shows operations are not far away from normal conditions.

In addition, train services were running in line with expectations. Nonetheless, there is always the risk of further Covid-19 variants impacting operations. This could have a negative impact on the FirstGroup share price.

Overall, these two FTSE 250 stocks exhibit consistent growth. Over the long term, as markets recover and travel returns to normal, I think these companies could produce strong results. I will be buying shares in both today.  

A high-quality FTSE 250 stock

Indivior (LSE:INDV) manufactures treatments to help patients overcome opioid addiction. Opioid addiction, particularly in the US, is a growing problem. Indivior has also brought the first subcutaneous long-acting injectable treatment for schizophrenia to market. That is an essential step in diversifying the company’s revenues.

Indivior looks like a company that is high in quality to me. The company has been profitable in five of the last six years, with 2020 being the exception. Operating margins average a respectable 13.9% and are fairly stable. Trailing 12-month returns on capital and equity come in at 21% and 144%, respectively, which beats most companies in the same industry and indeed the wider market. However, I am mindful that the company is named in a class-action lawsuit related to the opioid crisis in the US and legal risks remain elevated.

A good value mid-cap stock

FirstGroup (LSE:FGP) operates bus, coach, and train services in the UK and North America. First Group suffered large revenue and stock price drops during the pandemic, but it has survived relatively unscathed. Yes, balance sheet debt climbed during the pandemic. But the sales of US businesses in 2021 has softened the impact. These sales also explain why revenue forecasts for 2022 and 2023 are lower than pre-pandemic levels.

I think FirstGroup looks good from a value perspective. While its price-to-earnings ratio of 14.4 does not scream cheap, the stock’s price-to-book and price-to-sales ratios of 0.62 and 0.17 are well below industry and market averages. Ultimately, the stock’s fate will be decided by how well its operations bounce back from the pandemic. There is a concern that bus and rail services will never return to pre-pandemic volumes. In terms of non-work travel, I am not convinced. However, working from home is here to stay and will keep some workers off buses and trains some of the time.

A low-volatility FTSE 250 stock

The Twentyfour Income Fund (LSE:TFIF) holds a portfolio of UK and European residential mortgage-backed securities and collateralised loan obligations. The company aims to deliver a dividend yield of around 6% to its investors from this portfolio. In terms of yields, 6% is quite high, and it is not achieved without taking a commensurate degree of risk. Just shy of three-quarters of the portfolio is rated below investment grade, and the portfolio could be subject to large losses. This would particularly be true when there is stress in the markets.

However, on the whole, Twentyfour Income stock has shown low levels of volatility compared to other FTSE 250 members. A good deal of the fund’s portfolio is in floating interest rate securities. So, a rising interest rate environment should be good for the company’s stock price. This makes the stock different from other equities found in the FTSE 250 index, and that’s why I hold it in my portfolio.

Transport provider

First Group is one of the UK’s largest transport providers. As well as its UK operations, it has a presence in North America too. In the UK alone, First Group has over 30,000 employees and carries upwards of 700,000 passengers a day via its bus and rail operations.

A penny stock is identified as one that trades for less than £1. First Group shares are trading for 105p, hence my calling it a “nearly penny” stock. At this time last year, the shares were trading for 78p, which is a 34% return over a 12-month period.

Risks involved

The pandemic threw up a myriad of problems for First Group. Due to restrictions, customer numbers dropped substantially but costs remained. This led to performance being negatively affected and it needed to borrow cash to keep the lights on. Companies with lots of debt usually put me off, unless they have a way to service and pay down said debt. I believe First Group is well placed to do this due to its vital place in the UK’s transport infrastructure. However, new variants could lead to new restrictions and another drop in passengers. This could once more put pressure on the balance sheet.

Recent labour shortages here in the UK, such as a shortage of bus drivers, could also place unnecessary pressure on First Group’s operations. Reduced or affected operations could affect performance as well as consumer confidence.

A nearly penny stock I’d buy

I believe First Group’s position in the UK’s transport infrastructure is one of its biggest strengths. It possesses a large presence throughout the UK, in all major towns and cities, and possesses a large market share in its respective sector. As reopening continues, its operations could be vital to getting the public around, back to work, schools, and stimulating the economy. 

A bonus factor I like about First Group is its recent commitment to cut harmful emissions and move towards greener vehicles. There has been a rise in ethical investing in recent times and more firms are focusing on reducing their carbon footprints.

First Group also has a good track record of recent and past performance, barring the pandemic period. I do understand past performance is not a guarantee of any future performance, however. In its most recent half-year report, announced in December, it revealed good progress financially and operationally. It reported that revenue increased by 8% and operating profit by a mammoth 162% compared to the same period last year. In addition to this, earnings per share increased and debt levels reduced. Operationally, passenger numbers are edging closer towards pre-pandemic levels.

There is lots to like about First Group, in my opinion. It has a good track record of performance and recent results look good to me. Its crucial position in the UK transport network as well as other international operations lead me to believe it will continue to grow and perform well. I would add the shares to my holdings and believe it is an excellent nearly penny stock.

As such, here are three penny stocks I would buy as growth investments today in a diversified portfolio. 

Growth stocks to buy

Online travel agent Hostelworld (LSE: HSW) suffered a 76% decline in revenues for the first half of its 2021 financial year. Like almost every company in the travel sector, the group has been winded by the pandemic. 

However, I am attracted to this organisation because it has fantastic recovery potential. At the end of June, the group reported a cash position of €33.7m. Administrative expenses for the period were around €13.5m, implying the business has the funding for at least 18 months before it runs into problems. 

As an asset-light technology company, Hostelworld has a high level of operational gearing. This will produce high gross profit margins when revenues begin to tick higher. This gives the business headroom to weather the current uncertainty and prepare for growth in summer next year. 

Of course, there is no guarantee the travel and tourism market will rebound in 2022. A lot depends on the course of the pandemic. Nevertheless, coronavirus cases have declined enough for governments to open international borders for the past two summers. 

Recovery penny stocks

FirstGroup (LSE: FGP) and NewRiver REIT (LSE: NRR) are two other penny stocks with attractive outlooks. 

These companies are facing severe headwinds. Therefore, there is a high level of uncertainty surrounding their recovery potential. As a retail landlord, NewRiver’s fortunes are tied to those of the retail sector. With brick-and-mortar retailers struggling to draw consumers back into stores, the outlook for this sector is highly uncertain. 

At the same time, further coronavirus restrictions could limit public transport activity, which would only hold back FirstGroup’s recovery. 

Having said all of the above, there are reasons to be positive. After slumping last year, commercial property values are rising as investors return to the sector. These properties are also attracting different types of tenants, helping landlords like NewRiver diversify. 

What’s more, the government wants to encourage more consumers to use public transport in the long term, to reduce emissions and the number of cars on the road. This implies that while the near-term outlook for public transport operators like FirstGroup is highly uncertain, demand may increase in the years ahead. 

Considering these potential tailwinds, I would be happy to add these companies to my portfolio of penny stocks. They may be facing plenty of risks in the near term, but the potential for growth over the next five-to-10 years seems attractive. 

Transport provider

First Group is one of the UK’s largest transport providers and has a presence in North America too. FGP employs over 30,000 people in the UK and carries 700,000 passengers a day through its bus and rail operations.

As I write, shares in First Group are trading for 101p per share. At this time last year, shares were trading for 61p, which represents a 65% return. A penny stock is one trading for less than £1, hence why I identified FGP as a “nearly” penny stock. It is worth noting the FGP share price only surpassed the £1 mark last week for the first time since the market crash in 2020.

For and against

I have decided to compile a case for and against investing in First Group for my portfolio to help me make a decision.

FOR: When the pandemic struck, people were under instructions to remain at home. As a result, travel levels plunged, affecting operators such as First Group. With reopening in full effect and vaccination levels increasing daily, bus and rail operators are seeing numbers edge closer to pre-pandemic levels. Recently First Group reported 65% of pre-pandemic levels of use for its rail and bus operations. I expect this to continue and eventually surpass pre-pandemic levels in my opinion.

AGAINST: The pandemic did not help First Group’s balance sheet, unfortunately. It had to try and conserve cash, and performance was badly affected due to dropping customer numbers. As I write, it has lots of debt on the balance sheet, which does not fill me with confidence as a potential investor. This is not uncommon in penny stocks.

FOR: First Group’s place in its respective market as well as its place in the UK’s transport infrastructure is definitely a positive. With a large presence throughout the UK and a vital component in the transport infrastructure of many large cities and towns, First Group will continue to be vital towards reopening for individuals and businesses alike. Furthermore, it recently made a commitment towards greener use of vehicles to cut carbon emissions. This will please ethical investors.

AGAINST: Upon reviewing the transport market, I found that profit margins are quite slim, which is putting me off. With slim profit margins, there is a chance I may not see lucrative returns. In addition to this, the transport market is very heavily regulated. This regulation can change and also affect operations and profitability.

Better penny stocks out there

First Group has some good characteristics and current momentum. In the longer term it could offer a good return but I think there are too many challenges and its debt level currently concerns me too much. I believe there are better penny stock options out there for my portfolio, however. On that basis, I would not buy shares just now.

A strong earnings recovery predicted

Meanwhile, City analysts have pencilled in a strong recovery in earnings for the current year to March 2022. And they expect a leap higher the following year, worth around 170%. If the business hits those expectations, earnings will then exceed the 2019 level.

With the share price near 91p, the forward-looking earnings multiple is just above 12 for the trading year to March 2023. That’s a reasonable valuation to my eyes. However, there’s a fair amount of debt on the balance sheet, which could be problematic if we see another economic downturn.

But there’s little sign of economic weakness affecting laser-guided concrete-levelling equipment maker Somero Enterprises (LSE: SOM). In September, the company delivered an impressive half-year results report with revenue, cash flow and profits all shooting much higher.

Covid catch-up

The directors reckon the progress was driven partly by customers catching up with projects delayed by the pandemic. Looking ahead, Somero also expects a strong second half. Beyond that, chief executive Jack Cooney said the company is making “strategic investments to deliver healthy profits and cash flows … in the years to follow.“

Meanwhile, shareholders have been rewarded with a 125% lift in the interim dividend. And the company’s also engaged in a programme of buying back some of its own shares. But despite the progress, the valuation looks modest to me. With the share price near 500p, the forward-looking earnings multiple is near 12 for 2022. And the anticipated dividend yield is about 5.5%.

There’s some risk that trading in future years could ease back after customer workflows normalise. But Somero has been expanding its business for several years and the trend looks set to continue.

Investing in corporate debt

And strong trading for businesses is good for Blackstone Loan Financing (LSE: BGLF). The company aims to invest directly in floating rate senior secured loans and bonds, typically representing debt taken on by companies and other organisations. And it also invests in such debts indirectly through Collateralized Loan Obligation (CLO) securities and investments in loan warehouses — a CLO is a single security backed by a pool of debt. And the process of pooling assets into a marketable security is called securitization.

In September’s half-year report, the directors said there’d been reduced “actual and expected investment downgrade and default expectations.” And that led to a positive performance for the business. But looking ahead, the company is cautious about the way the pandemic could play out. However, the outlook for the rest of 2021 is “optimistic”.

There are clear risks with this one. That’s because the company’s exposed to the possibility of other firms defaulting on their debts. However, I think the valuation helps to compensate for such higher risks. And, of course, defaults aren’t certain.

With the share price near 81 euro cents, the price-to-asset value is near 0.9 and the shareholder dividend yield is running near 9%.

I’d buy both these cheap FTSE 250 shares based on their current valuation and growth prospects. 

Cheap FTSE 250 shares 

The first stock on my list is public transport operator FirstGroup (LSE: FGP). Over the past year, as consumers have been repeatedly told to stay at home and avoid travelling, public transport use has plunged. This has had a severe impact on the company’s sales and profits. 

According to its half-year results for the six months to the end of September 2020, the company reported an adjusted operating profit of just £10m. However, the figures were skewed by a £33.2m benefit relating to the termination of its Avanti Rail contract. In the prior-year period, it earned £89m.

Management has pulled out all of the stops over the past 14 months to reinforce the group’s balance sheet and prevent further losses. These actions include the decision to sell its US bus divisions for £3.3bn. The company has also been trying to sell its Greyhound US intercity bus service. 

I think these moves should stabilise the group’s balance sheet and put the company on a stable footing to return to growth. Indeed, I believe that despite the pandemic, demand for public transport will only increase as the government tries to get people out of cars and onto more efficient forms of public transportation. 

As such, while the FTSE 250 group has struggled over the past 14 months, I’d buy the stock for the long term. 

That said, public transport can be a challenging industry in which to operate. Profit margins are slim, and the sector is heavily regulated. These challenges may hold back growth. There’s also a chance the company’s growth may come under pressure if it fails to win contracts. 

Growth and income

The other FTSE 250 stock I’d buy in July is CMC Markets (LSE: CMCX). This financial services company reported a record increase in profits last year. The combination of increased market volatility and stuck-at-home traders with little else to do helped the firm’s top and bottom lines. 

Profits hit £178m last year. Unfortunately, this boom is unlikely to last. Net income will decline to £104m this year, according to City projections. Still, even at this level, the stock is trading at a forward price-to-earnings (P/E) multiple of just 12.5. I think that looks cheap. 

What’s more, it offers a dividend yield of 4%. Based on these qualities, I’d buy the FTSE 250 stock today. 

Like most financial operations, regulatory risk is a key challenge the group has to deal with. If it falls foul of regulators, it could lose access to key markets, which would significantly impact revenue and profit generation. This is probably the most considerable risk hanging over the stock today.