And that makes me think now is a great time to search for cheap FTSE 250 buys. Here are three that I think look good value now.

Undervalued bank

Paragon Banking Group (LSE: PAG) released half-year results on 14 June, and the share price perked up nearly 7% on the day. Over the past 12 months it’s fallen 7.3%, which is certainly not great. But it does beat the index’s drop of 16%.

The economic outlook might be tough for the banking sector. But Paragon still reported record first-half profits. Underlying earnings per share grew by 29%, and the dividend rose 30%.

Paragon’s capital position looks strong. And CEO Nigel Terrington said “…we have extended this year’s share buy-back by an additional £25 million“.

What’s the downside? The economic squeeze is probably only just starting. And a tough lending environment could put pressure on Paragon in the second half.

But annualising these figures hints at a price-to-earnings ratio of under eight. And forecasts indicate a full-year dividend yield of 5.5%. I’d buy.

FTSE 250 housebuilder

Housebuilder Crest Nicholson (LSE: CRST) also put out first-half figures on 14 June. And I think the dip we’re currently seeing provides some nice buying opportunities for the sector.

The Crest Nicholson share price is down 34% over the past 12 months. It has been rebounding a little since May, though, including an 11% jump on results day.

Crest saw a 12.3% rise in revenue, after completing 7.8% more homes in the period. The company spoke of the “underlying strength of the housing market,” which counters the pessimism I’m seeing from other quarters.

This is another stock that could be pressured if there’s a borrowing squeeze. And though Crest is upbeat about the second half, we could still see falling demand. But it’s another cheap long-term buy for me.

Investment management

Hedge fund manager Man Group (LSE: EMG) has bucked the FTSE 250 trend, gaining 26% over the past 12 months.

Even after that, we’re looking at a trailing P/E of only 8.7. Apart from a Covid dip in 2020, dividends have been steadily progressive over the past few years too. Current forecasts suggest a 4.4% yield this year, and that should be very well covered by earnings.

On the downside, hedge fund investing can be volatile. And Man uses gearing through borrowing too, so there’s clearly some risk there.

But so far, the company’s computer-based investing strategy has been producing the goods, with strong cash generation as a result. Man is buying back its own shares too, so I’m not the only one to think they’re good value now.

Would I spread £5,000 across these three? Definitely.

• Games Workshop Group has a compound annual EPS growth rate of 31.4%
• Paragon Banking Group’s dividend increased to 26.1p per share for 2021, up from 14.4p the year before
• Both companies exhibited strong revenue growth between 2017 and 2021 

The recent market sell-off has extended to the share prices of most companies. While many investors panicked and immediately sold shares out of fear, I’ve been holding tight and scouring the FTSE 250 index for high-quality growth stocks. I think I’ve found two firms that fit the bill, based on their revenue and earnings per share (EPS) record. Why am I adding them to my portfolio? Let’s take a closer look.

A FTSE 250 games manufacturer

Games Workshop Group (LSE:GAW) is a UK-based manufacturer of miniature figures and games. From my analysis, this is a company that has been growing consistently.

For the years ended June, the business increased revenue from £158m in 2017 to £353m in 2021. Furthermore, its EPS rose over the same period from 95.1p to 372.7p. By my calculation, this results in a compound annual EPS growth rate of 31.4%. As a potential investor, I find this incredibly attractive. That said, past performance is not necessarily a reliable indicator of future performance.

In addition, a trading update for the six months to 28 November 2021 showed that sales improved slightly. On the other hand, pre-tax profits dipped to £86m from £91.6m during the same period in 2020. This can partially be explained, however, by the excessive demand for games during the lockdowns of the Covid-19 pandemic.

A solid banking group

The second company, Paragon Banking Group (LSE:PAG), is a banking firm specialising in mortgages and commercial lending. It has also seen its EPS grow over the 2017 to 2021 calendar years, from 43.3p to 65.2p. This results in a compound annual EPS growth rate of 8.5% While this is not as high as Games Workshop, it still constitutes consistent growth.

In a trading update for the three months to 31 December 2021, however, the business confirmed that 2022 full-year guidance remained unchanged. The company therefore still believes that Covid-19 could pose a risk to its operations, despite positive results.

On the other hand, revenue increased between the 2017 and 2021 calendar years from £252m to £324m. In addition, the annual results for the 2021 calendar year stated that the dividend would increase to 26.1p per share, up from 14.4p in 2020. This is attractive to me as a passive income investor. It also announced a £50m share buyback scheme, another sign the company is in a healthy state.

I like both of these firms because of the fact they exhibit consistent growth over a period of time. Buying shares in each is a good way for me to respond to the current market sell-off, because they could provide long-term growth. I will be purchasing shares in both businesses without delay.

The FTSE 250 has since settled lower and was last only fractionally higher on the day (around 22,920 points). But the Paragon Banking Group (LSE: PAG) share price is having no such problems holding onto meaty gains.

A bubbly trading statement helped Paragon’s share price also strike new highs of 575p per share in afternoon trade. It has retraced a bit, but at 567p per share the bank remains 11% higher than at Monday’s close. The buy-to-let lender has now risen 54% in value over the past year.

FTSE 250 firm enjoys record half-year profits

Paragon Banking Group announced that underlying profit came in at £82.9m during the six months to March. This represented a half-year record and was up 44.9% year-on-year. Net interest margins — the difference between what banks offer to borrowers and savers — rose to 2.32% from 2.29% a year earlier.

A sharp fall in bad loans from the same period a year earlier also helped the bottom line beat forecasts. Impairments clocked in at £6m during the first half versus £30m in the same period in financial 2020.

New lending at the FTSE 250 firm was up 45.1% in the first half versus the previous six months. Paragon Bank said that new loans were also just below pre-coronavirus levels in the latest half-year period. Buy-to-let advances were down 5% from a year earlier, though these were up 58% from the previous six months.

“The strong performance in the first half of the year reflects the resilience of the business model both financially and operationally as the economy recovers from the Covid pandemic”, Paragon said. It added that its markets “have seen healthy quarter-on-quarter improvements in activity [and that its business] has been building momentum”.

A mixed outlook?

So what do brokers think UK share pickers should expect in the coming months? Commenting on today’s results, managing director Rob Murphy of Edison Group says, “Investors will be pleased to see the beginnings of recovery in the group’s key buy-to-let mortgage business”. He notes that “performance strengthened” at Paragon Banking Group in the first half and that total loans rose 4.7% from a year earlier to £10.9bn. This reflected “a more positive outlook for the wider property market”, he says.

However, Murphy has sounded a note of caution concerning the firm’s commercial lending division. He says that “Similar levels of recovery are yet to be seen” here and that Paragon saw lending fall in the motor, SME, and structured lending sectors on a year-on-year basis. He adds that “The looming prospect of the closure of government support schemes means that many uncertainties remain”.

Today, I’m looking at three FTSE 250 stocks I reckon offer a great mix of growth, income and value.

Under the radar

Defence engineering group Ultra Electronics (LSE: ULE) has been in business for 100 years. Since its listing on the London Stock Exchange in 1996, Ultra’s share price has risen by almost 600%, and its dividend has never been cut.

I think this business has the potential to keep growing. Ultra Electronics builds sub-systems used by most of the western world’s biggest defence contractors. Disruption was minimal last year, with revenue up 5% to £860m and pre-tax profit 8.7% higher, at £114.5m.

The biggest risk I can see is that almost a quarter of Ultra Electronics’ revenue comes directly from the US Department of Defense. If this relationship changed, I think it would cause serious problems. There’s no sign of this happening at the moment, but it’s something I’d monitor.

Ultra shares currently trade on 16 times 2021 forecast earnings, with a 2.9% dividend yield. This FTSE 250 stock is on my list shares to buy now.

I’d buy this instead of oil

My next pick is a relatively new arrival on the London Stock Exchange. Vivo Energy (LSE: VVO) is an African business that sells Shell-branded fuels and lubricants in 23 African countries. The group’s operations include selling aviation and marine fuel, in addition to running more than 2,300 service stations.

Big oil producers including Royal Dutch Shell are already placing a growing emphasis on their retail and marketing operations, as they prepare for the switch to electric cars.

In my view, Vivo Energy is a pure-play way to invest in this opportunity. I reckon service stations — with convenience stores and cafés — are here to stay. Even if we switch to electric cars, we’ll still need fast recharging points on longer journeys.

African markets offer the added opportunity of younger, faster-growing populations. Of course, they also carry some extra risks. Political instability is a concern in some areas, while underdeveloped infrastructure could limit good quality growth opportunities.

Even after the gains seen since November, Vivo still trades on just 13 times forecast earnings, with a forecast yield of 3%. I see this as a long-term growth opportunity.

A dividend share to buy now?

My final pick is Paragon Banking (LSE: PAG). This specialist bank has a market-cap of £1.3bn and is focused on the buy-to-let mortgage market.

For me, one attraction of this business is that Paragon’s specialist focus means it’s more profitable than the big high street banks. Paragon’s return on equity — a key measure for banks — has averaged 11.5% since 2015, compared to 5.2% for Lloyds Banking Group.

Paragon’s latest update reports “low levels of arrears” and “strong capital ratios.” However, if the economy slumps as we come out of the Covid-19 pandemic, we could see much higher levels of bad debt. This would hit Paragon’s profits and could trigger a dividend cut.

As things stand, Paragon stock trades slightly above its book value and offers a dividend yield of around 4%. Given growing demand for rental housing, I think this business could deliver steady growth in the coming years. It’s a share I’d be happy to buy today.

But when a well-established clique of companies is thrown to the wolves, that does a good thing – it exposes weaknesses and opens the door for those that can do better. The challenger banks have benefited, and today I’m looking at Paragon Banking Group (LSE: PAG).

Specialist lending

Paragon focuses on specialist lending markets, and its buy-to-let coverage has attracted negative sentiment, as my colleague Harvey Jones has noted. But though that market is falling out of favour with private investors, the professional segment is robust and I expect it will remain that way.

In full-year results released Tuesday, chief executive Nigel Terrington said: “We are delighted to report another excellent financial and operational performance, underpinned by our effective diversification strategy and focus on specialist lending. Volumes, profits and dividends are up strongly, and we are moving closer to our medium-term target of over 15% return on tangible equity.”

The company reported an 8.5% rise in lending volumes to £2.53b, leading to a 5% rise in underlying pre-tax profit to £164.4m.

Retail deposit balances rose by a big 20.7% to £6.39b, indicating a solid balance sheet. Paragon was able to report a common equity Tier 1 ratio of 13.7%, which is healthy and looks consistent – a year ago, the same measure stood at a near identical 13.8%.

The dividend was lifted 9.3% to 21.2p per share, for a yield of 4.2%. That’s not the biggest in the banking sector, but it does represent a near-doubling from the 11p paid out in 2015. Looking at forward price-to-earnings multiples of under 10, I see Paragon as a long-term buy.

Big banks

Does that mean I’m bearish on our big FTSE 100 banks? Not a bit of it, and I’m still very happy with my holding in Lloyds Banking Group (LSE: LLOY).

What are Lloyds’ strengths? For me it’s essentially that we’re looking at a domestic-focused bank these days (after the inevitable loss of London as Europe’s main banking centre), but one that is showing growing profits, strong cash flow, and a healthy balance sheet, and which is paying handsome dividends. Oh, and the shares are on a very low P/E rating.

While the Lloyds share price has stagnated, I’ve kept on taking my dividends with a smile on my face, and I’m looking forward to reinvesting the 5.6% I’m likely to receive this year. But I really would like to see an improvement in the stock’s forward P/E valuation of only eight, so what would that take?

Politics

It seems clear that it’s all down to what happens politically in the next few months.

I reckon Boris Johnson is likely to win the election with a working majority, and will be able to get his latest Brexit deal through Parliament. And though I think the man lacks integrity and I wouldn’t trust him an inch, I see him as likely to be far less damaging to the economy than Jeremy Corbyn.

It’s a sad state of affairs, politically, when we have to pick the least worst option – but hopefully it will presage an uptick in stock market confidence, with Lloyds, specifically, getting back to business as usual.

Brexit blow 

The Lloyds share price has been repeatedly tipped (including by me) to stage a share price comeback, but it continues to flounder. It’s fallen another 13.5% in the past three months, as Brexit fears bite and concerns grow that the global economy is slowing, which could drive interest rates back down again.

Lloyds still tempts me as it offers an incredibly attractive forecast yield of 6%, covered 2.2 times by earnings. By 2020, City analysts believe that could hit 6.4%. Lloyds is now the dividend machine of yore.

Bargain buy

Today, you can buy it at a forward valuation of just 7.5 times earnings, which puts it deep into bargain territory. A price-to-book value of 0.8 only adds to what looks like an incredibly strong buy case for the £40bn FTSE 100-listed high street banking fixture.

Yet still Lloyds stock falls. Stagnating interest rates make it hard to widen net interest margins and boost profitability, while the slowing global economy threatens a rise in bad debts and impairments.

Boris question

A lot depends on whether new PM Boris Johnson can deliver on his promises, as do so many things. A no-deal Brexit, vote of confidence, or new general election would all menace the UK economy and banking sector. Although that might also be a buying opportunity for contrarian long-term investors.

Edward Sheldon says Lloyds also faces competition from the new breed of challenger banks, as do all the high street monoliths, but he can’t resist that dividend either.

Still life in buy-to-let

One of those challengers is Paragon Banking Group (LSE: PAG). Its stock is up 1.5% today after its trading update for the nine months to 30 June showed “strong new business growth and margin improvements,” in the words of CEO Nigel Terrington. He said the group has delivered in line with expectations and “is well placed to deliver our 2019 objectives.”

The Paragon share price is up 62% over three years, despite stagnating lately, and Brexit won’t have helped here. Today it reported a 20% rise in year-to-date lending to £1.9bn, with continued improvements in net interest margins. Total deposits have now topped £6bn.

Value stock

One problem Paragon has faced down is its focus on buy-to-let, which has been hit hard by the Treasury’s tax crackdown on amateur landlords. Fortunately, the business focuses on the professional market rather than the dwindling private investor sector, and its buy-to-let pipeline climbed 3.2% to £733m. The bank cannot see any signs of deterioration or stress in the credit performance of its loan books, although it’s making precautionary preparations, and maintains a tight risk appetite.

Roland Head admires Paragon’s resilience, noting it has survived several boom and bust cycles since launching in 1985. He also likes its dividend potential, with a forecast yield of 4.7%, covered 2.4 times. Paragon stock is valued at a lowly 8.9 times forecast earnings. So Lloyds isn’t the only potential bargain in the banking sector.

Things were better outside the capital, but credit specialists Totally Money could only find 10 postcode areas in the UK with rental yields above 8%.

For new landlords, I believe that real returns are likely to be very much lower than this. Totally Money’s theoretical yields were calculated ‘gross’, by comparing rents with property prices. They didn’t include the cost of mortgage interest, repairs, insurance, or empty periods between tenants.

In my opinion, anyone buying a house to rent today will be lucky to make more than 5% per year. I think there are much better options elsewhere.

How to earn 10% from housing

FTSE 250 group Galliford Try (LSE: GFRD) is an unusual mix of construction firm and house-builder. Shares in this hybrid firm have dipped by about 45% over the last two years, as the company has fallen dramatically out of favour.

This collapse is partly due to general concerns about the outlook for the construction and housing sectors. But Galliford’s slump has been made worse by some company-specific problems which followed the failure of Carillion.

As a result, Galliford shares now trade on just 5.3 times 2019 forecast earnings and offer a 10% dividend yield.

This must be too risky?

You might think that this extreme valuation is a sign of problems ahead. Normally, I would agree with you. But in this case I think the market sell-off has probably gone too far. The shares appear to be priced for a disaster, but there’s no sign of this at the moment.

The group has recently won two major road-building contracts which form part of an £8bn framework awarded by Highways England. Meanwhile, the performance of its house-building division, Linden Homes, is said to have been in line with expectations in 2018.

Other house-builders are also reporting stable performances with a strong outlook. In my view, Galliford’s 10% dividend yield could make the stock a more profitable investment than buy-to-let at the moment.

Another way to profit from buy-to-let

If you own one or two buy-to-let properties, your risks are highly concentrated. One-off costs like boiler repairs or new kitchen appliances can put a big dent in your rental income.

An alternative way to invest in the rental sector is through Paragon Banking Group (LSE: PAG). This lender specialises in buy-to-let mortgages, which accounted for 72% of new lending during the final three months of 2018.

Paragon’s performance has been consistent and profitable in recent years. The firm’s return on tangible equity — a key measure of banking profitability — rose to 16.1% last year, while underlying pre-tax profit rose by 7.8% to £156.5m.

One attraction is that the group is able to fund an increasing amount of its lending using customer deposits made into its savings bank. Deposits are generally much cheaper than any form of borrowing for a mortgage lender, so by doing this Paragon can remain competitive and enjoy decent profit margins.

This lender has been in business since 1985, so it’s survived several boom and bust cycles already. This gives me confidence in the long-term outlook for the business. With a well-covered dividend yield of 5.2%, this is a stock I’d consider buying.

Personally, I prefer to gain exposure to the housing market by investing in listed companies with exposure to UK property. Today, I’m going to look at two such firms, both of which offer attractive 5% dividend yields

A guaranteed profit from buy to let?

One way to make money from buy-to-let property is to provide mortgages for landlords. Paragon Banking Group (LSE: PAG) is a specialist buy-to-let lender with more than 20 years’ experience. During the year ending 30 September, the value of new loans to landlords rose by 6.8% to £1,495.5m.

This increase helped to lift the group’s adjusted pre-tax profit by 25.3% to £181.5m last year. Paragon’s return on tangible equity — a key measure of profitability for lenders — rose from 13.4% to 16.1%.

Demand from buy-to-let landlords is said to remain strong. The firm’s pipeline of new lending opportunities rose by 28.9% to £778.9m last year. One reason for this may be that tougher government rules on lending to landlords have prompted some smaller lenders to exit this market. This could make it easier for larger players like Paragon to increase their market share.

Why I’d buy

Paragon’s main focus is on what it calls “professional landlords.” This generally means borrowers with more than three mortgaged rental properties, or those renting houses of multiple occupation.

As a potential investor, this looks more attractive to me than pinning my hopes on a single rental property.

I’m also attracted by Paragon’s valuation. The shares currently trade at just 1.2x their tangible net asset value of 359p per share. Alongside this, broker forecasts indicate a dividend yield of 5.1% for 2018/19. Overall, these shares look good value to me. I’d rate Paragon as a buy.

Bricks, but no mortar

Many new-build houses are sold to rental landlords. Although you can invest directly in house-builders, one way to spread your exposure more widely is to buy shares in a brick maker.

One of my favourite stocks in this sector is Forterra (LSE: FORT). Shares in this firm have fallen by nearly 30% this year, but I think this sell-off may have gone too far.

The group’s latest trading update reported “good levels of activity in the new build residential sector.” Sales so far this year are said to be “marginally ahead” of last year. Although rising costs from energy, fuel and carbon credits put some pressure on profits, the company still generated enough cash to reduce net debt by 8% to £56.1m.

Unfortunately, problems with a kiln mean that this facility will have to be rebuilt before operations resume. This means that operating profit this year will be £2m-£3m lower than expected.

I don’t see this one-off problem as a huge concern. Broker forecasts indicate that earnings are expected to rise by 4%, to 25p per share this year. This earnings figure should cover the forecast 10.4p dividend 2.5 times, providing a good margin of safety for income seekers.

At the time of writing, Forterra shares were trading at 218p. This puts the stock on a forecast price/earnings ratio of 8.3 with a dividend yield of 4.9%. I believe this could be a good buy, despite the risks of a housing slowdown.

Unloved growth

Back in Mid-may, shares in Paragon were changing hands for high of just under 550p. Unfortunately, it didn’t take long for the stock to start coming off the boil. By the end of September, the stock had slumped nearly 25% from that all-time high.

In my view, this decline is unwarranted. Fundamentally, the business hasn’t changed over the past few months. The last time management reported on trading to the market it told investors the group is still firing on all cylinders and “continues to operate in line with the board’s expectations.“

Management hasn’t issued a specific earnings growth target for 2018, but the City has pencilled in earnings per share (EPS) growth of 13%. I’m inclined to believe that when the final figures are published, Paragon may beat expectations, as analysts have been steadily increasing their growth estimates for the group over the past 10 months.

But what really attracts me to the shares is the valuation. The stock is currently changing hands for just under nine times forward earnings, falling to eight times for 2019. With EPS growth set to average 11% per annum for the next two years, I reckon the stock should command an earnings multiple that is at least equal to earnings growth.

On top of Paragon’s discount valuation, the stock also supports a dividend yield of 4.4%, and the payout has grown at a compound annual rate of 21% over the past five years. 

So overall, after recent declines, Paragon looks both cheap and offers a market-beating dividend yield. That’s why I rate the stock a ‘buy’ today. What’s not to like?

Emerging market play 

Georgia Capital (LSE: CGEO) is another financial stock that has also appeared on my radar recently and looks undervalued. 

This is quite a unique business. It is a holding company for a group of companies in Georgia, which manage everything from utilities to home construction and insurance products. This structure means it has more in common with a private equity business than financial services enterprise. As a result, I think it is more sensible to value the company based on its net asset value (NAV) than its earnings growth.

Using this metric, the stock appears to be undervalued by around 8%. According to a trading update published by the group earlier today, NAV per share was 44.6 Georgian Lari at the end of the third quarter, which works out at around 1,302p when translated back into sterling.

That being said, I wouldn’t expect this stock to trade at its precise NAV due to the risks of operating and investing in an emerging market.

Still, if you’re looking for exposure to one of Europe’s fastest-growing economies, I reckon it could be worth spending some time to understand Georgia Capital and its long-term potential.

However, it’s share price may now be dirt-cheap. It has a price-to-earnings (P/E) ratio of around 11, which is relatively low at a time when the FTSE 100 is trading close to a record high. As such, it could be worth buying alongside another stock that reported a positive update on Tuesday and which could offer excellent value for money.

Improving outlook

The company in question is Paragon Banking (LSE: PAG). It released an encouraging trading update ahead of its 30 September year end. It has performed in line with previous guidance while making progress on growing its retail deposit base. It now exceeds £5bn, and the performance suggests that it could grow further in the medium term.

The company’s buy-to-let pipeline at the end of the financial year is expected to be 25% above the level reported last year. This is set to support lending volumes into the next financial year. With around 90% of application flows coming from professional landlords, the prospects for the business may be more resilient than for some industry peers.

Looking ahead, Paragon is forecast to report a rise in earnings of 9% in the current year, followed by further growth of 14% next year. Despite this, it has a forward P/E ratio of around 11, which suggests that it offers a wide margin of safety. As such, now could be the perfect time to buy it for the long term.

Growth potential

Similarly, Saga’s share price performance could improve in future. Although the company’s performance in the current year is set to be below previous expectations, with its bottom line due to fall by 5%, the scale of the decline in its share price in recent months seems excessive. That’s especially the case when the business is forecast to report a rise in earnings of 2% in the next financial year.

With Saga having a dividend yield of around 7% from a payout which is covered 1.5 times by profit, its income investing prospects appear to be bright. They could attract investors to the stock, which could have a positive impact on its share price.

Ultimately, the company faces a period of change and uncertainty. Fundamentally, it appears to be sound, with a strong position in its core markets and a relatively loyal customer base. Therefore, for value investors who take a long-term view of their portfolios, it could be a worthwhile buy. It has the potential to return to its level from one year ago, although it may take a number of years for it to do so. In the meantime, its dividend yield could keep its returns relatively high.