Best shares to buy now: my top 3 FTSE 250 stocks

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Some of my most profitable investments have been in FTSE 250 shares. Although the past is no guarantee of future performance, the mid-cap index contains many of the shares I’d like to buy today.

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.

The post Best shares to buy now: my top 3 FTSE 250 stocks appeared first on The Motley Fool UK.

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Roland Head owns shares of Royal Dutch Shell B. The Motley Fool UK has recommended Lloyds Banking 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.

Motley Fool UK 2021