When investing in mid-cap stocks, you don't necessarily have to invest a fortune to make a decent return. Indeed, it's not unusual for a FTSE 250 company to rise 50% in the space of a year or so, meaning that an investment of £1,000 generates a profit of a healthy £500. With that in mind, here's a look at two FTSE 250 stocks I'd buy with £1,000 right now.
Packaging may not be the world's most exciting business, but that doesn't mean there aren't exciting returns available from the sector. For example, over the last five years, packaging specialist DS Smith(LSE: SMDS) has returned around 190% in capital appreciation terms, resulting in a total return including dividends of a high 27% per year on an annualised basis.
However despite this impressive performance, I reckon DS Smith still offers value at present. Here's why.
On FY2017 forecast earnings of 31.6p per share, DS Smith shares can be purchased on a forward-looking P/E of 13.9 right now, which is significantly cheaper than the average FTSE 250 P/E of 15.9. Other metrics suggesting that the stock is inexpensive include its P/E-to-growth (PEG) ratio of 1.3 and its enterprise value (EV)-to-sales ratio is 1.32.
These metrics look very reasonable given the strong momentum the firm is currently enjoying. This is a company that has grown its revenue at a five-year compound annual growth rate (CAGR) of 20% and earnings at a CAGR of 24%. The dividend, which currently sits at a yield of 3.1%, has also grown at a CAGR of 24% in the last five years.
With City analysts forecasting FY2017 revenue and earnings growth of 16% and 15% respectively, along with a 10% increase in the dividend, and the company set to enjoy tailwinds from the rise in online shopping, I believe DS Smith offers strong value at the current share price. Consequently, I'll be looking to add to the position in my personal portfolio in the near future.
Sticking with the packaging sector, RPC Group(LSE: RPC) also looks to have appeal at present. Like DS Smith, it has been a strong performer over the last five years, with revenue growing at a CAGR of 18% and earnings per share growing at a CAGR of a 35%. The stock has been a great performer for long-term shareholders, also generating a total return of 27% per year over the last five years.
RPC has made a string of acquisitions in the last year, including the key acquisition of Letica Group, which it believes will help create a "meaningful presence outside of Europe", and provide it with a platform from which to make future growth investments in the US.
As a result, revenue is forecast to increase a huge 65% on last year, with earnings predicted to grow from 43p per share to 58p per share, a 34% rise. The company recently confirmed that FY2017 revenue is anticipated to be "significantly ahead of last year" and that the group's financial position remains "robust with good cash flow development."
RPC announced a 1:4 rights issue with the Letica acquisition, and as a result, its share price has fallen around 20% to the 800p mark. At this price, the stock trades on a forward-looking P/E ratio of 13.8, falling to 11.9 for FY2018, which looks reasonable to me, given the growth potential of the company.
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Edward Sheldon owns shares in DS Smith. The Motley Fool UK has recommended DS Smith and RPC 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.