Stock market

Major brokers are buying these FTSE 250 stocks. Should I join the crowd?

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The Camming Group (LSE: CHG) is one. FTSE 250 The stock which released positive half-year results yesterday (June 4). As a result, it has attracted the attention of major brokerages such as Berenberg and Shore Capital, both of which have buy ratings on the stock.

The international company is a supplier to the defense industry, although its market cap is quite small compared to peers. At just £1bn, it pales in comparison to the big defense contractors. B.A.E And Rolls Royce. That can be good for investors though — a smaller market cap means more room for growth.

And it looks like Chemring may be poised to capture its own corner of the market.

Strong results

Interim results for the half year revealed a 39% increase in the order book to a record breaking £1.041m. Revenue rose 8 percent but statutory operating profit fell 24 percent. Still, it has increased its dividend to 2.6p per share from 2.3p last year, and the yield is expected to rise from 1.7% to 2.5% over the next three years.

There is also evidence that the company is spending its money well. Return on employment (ROCE) is up from 11.2% three years ago to 15.3%. The group also announced plans to increase revenue to £1bn by 2023, as well as investing a further £28bn in its share buyback programme. This is double the current level.

Ambitious, to say the least.

NATO connection

Chemring manufactures specialized technical products for the aerospace and defense industry, such as sensors, locators and chemical detectors. These are used by the North Atlantic Treaty Organization (NATO) to improve global defense efforts.

Although it is not directly involved in international conflicts, it has benefited from recent increases in defense spending. As CEO Michael Ord mentioned in the H1 results press release:Rising geopolitical tensions around the world are driving a fundamental rearmament process, which is expected to continue for at least the next decade.

A moral dilemma?

Sadly, the company’s ambitious targets depend largely on ongoing defense requirements. This is something I’m sure most people will rarely see. I think it is fair to say that the situation in the Middle East is polarizing public opinion regarding defense spending. So while the industry is a necessary evil, investing in it can pose a moral dilemma for some.

Does this suggest that by doing so I am supporting the war? Not required.

I do not think that investing in defense means that I am hoping for conflicts to escalate, but rather that countermeasures will help resolve conflicts sooner. However, it is not as if these companies will disappear if tensions ease. In many ways, technological advances in defense are intended to reduce the likelihood of casualties.

Of course, this is a very personal choice. And the FTSE 250 has a wealth of other options to choose from.

In terms of results, I think Camering has great potential. But my portfolio is already heavily weighted towards defense so I won’t be buying stocks for now. However, I would definitely consider rebalancing it later if I free up capital by selling something else.


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