2 dirt-cheap FTSE 250 stocks to buy now

Risk reward ratio / risk management concept

I’m looking for cheap stocks in the FTSE 250 today. Here are two I’m considering buying for my portfolio.

Integrated mobility solutions  

The first stock is Redde Northgate (LSE: REDD). The company is the result of an all-share merger between Redde and Northgate that completed back in early 2020. Now, the combined company offers a range of mobility solutions across areas such as vehicle rental and accident management using its network of over 110,000 owned and leased vehicles.

The share price is up 83% over the last 12 months, and management said a cost saving of £20.5m has been secured ahead of schedule. These are signs that the merger is going well.

Analysts are expecting respectable growth for the business in 2022 and 2023, with earnings set to grow between 15% and 19% in both years. The valuation is cheap, in my view, with the stock on a forward price-to-earnings (P/E) ratio of 11.5. The dividend yield is also attractive at 4.4%.

I do have concerns over supply constraints in the commercial vehicle market, though. These issues have meant prices have risen, and if Redde Northgate needs to replenish its fleet of vehicles then margins could be squeezed. The company said it has been a net positive so far as it has been able to sell older vehicles at higher prices. I do still see this as a key risk to consider before buying the shares.

Food manufacturing 

The next FTSE 250 company I consider good value is Premier Foods (LSE: PFD). It is a food manufacturing business with a portfolio of recognisable brands. Premier Foods employs over 4,000 people at 15 manufacturing sites and offices across the country.

The recent first-quarter update showed that the business has made a very encouraging start to the year. Comparing to the same period two years ago (pre-Covid), overall revenue was up 6.3%, with branded sales rising 9.3%. Premier Foods is also selling more online now, rebasing to nearly twice the level they were before the pandemic.

The shares trade on a forward P/E of 9.7, which could be particularly cheap if the momentum in revenue growth continues.

My big concern for Premier Foods is the prospect of higher inflation. Input costs have been rising significantly this year, and this could severely impact margins in the business. If Premier Foods can’t pass these costs on to consumers due to a lack of pricing power, then the share price could tumble. It’s a significant risk to consider.

Final thoughts

I think Redde Northgate and Premier Foods are attractively valued relative to forward earnings. Redde Northgate also offers a respectable 4.4% dividend yield.

In both cases, though, rising inflation could be an issue. Redde Northgate is directly exposed to the troubled automobile market, whereas Premier Foods could suffer from a lack of pricing power.

On balance, I think both stocks are cheap enough to account for the risks ahead. I’d look to buy Redde Northgate and Premier Foods for my portfolio.

The post 2 dirt-cheap FTSE 250 stocks to buy now appeared first on The Motley Fool UK.

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More reading

  • 2 UK stocks I can’t believe are this cheap!
  • 2 dirt-cheap UK stocks under £3 to buy right now
  • 3 dirt-cheap FTSE 250 shares to buy now

Dan Appleby 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.