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Here’s a dirt cheap FTSE 250 share and a top exchange-traded fund (or ETF) on my shopping list this October.
AI frenzy
The market buzz around artificial intelligence (AI) remains intense. So as concerns over Nvidia‘s high valuation remain, share pickers are buying other, more reasonably-priced companies to capitalise on this new tech frontier.
During Q3, semiconductor and chip manufacturers dominated the list of companies with the largest proportionate increase in UK retail investors. These companies accounted for five of the 10 biggest risers among eToro customers:
| Stock | Increase in holders Q-o-Q |
|---|---|
| Broadcom | 25% |
| ASML | 17% |
| Super Micro Computer | 17% |
| Intel | 17% |
| Micron Technology | 15% |
eToro analyst Sam North notes that “the transformative potential of AI continues to dominate the business agenda, and UK investors are increasingly turning to the companies that these technologies are built on“.
With AI stocks coming back into vogue, I’m considering increasing my stake in iShares S&P 500 Information Technology Sector UCITS ETF (LSE:IUIT).
As its name suggests, this ETF gives me broad exposure to the US tech sector. It has holdings in 69 companies, in fact, including all of those on the ‘biggest risers’ list above.
The beauty of this fund is that it allows me to capitalise on the AI boom in a way that greatly reduces risk. This ETF might not have provided the stunning recent returns of Nvidia. However, it’s still appreciated rapidly in value, up 30% over the past year and a brilliant 214% in the past five.
Personally speaking, I think this is the more sensible way to try and make big profits from AI. History shows us that early tech leaders (like MySpace, Yahoo! and Netscape, to name a few) can spectacularly collapse after shining brightly.
While I’m not saying Nvidia will meet the same fate, a fund like this helps reduce this threat.
Returns may disappoint during economic downturns when companies and consumers typically rein in spending. But I’m confident this ETF will prove a wise investment over time.
A cheap FTSE 250 stock
Having said all this, I’m to be flexible if the ‘right’ tech investment opportunity comes along. I think FTSE 250-quoted NCC Group (LSE:NCC) might be one such business.
It doesn’t operate in the field of AI. But the company’s a rising star in the world of cybersecurity. And for this financial year, NCC’s shares command a price-to-earnings growth (PEG) ratio of 0.2. Any reading below 1 indicates that a stock is undervalued.
The PEG reading remains ultra low for the two following years, too, at 0.7.
NCC provides cybersecurity and risk mitigation services like security consulting and software escrow. And right now it’s enjoying robust sales growth as the digital landscape grows and evolves.
Revenues rose 4% between the traditionally quiet July to September period, latest financials show. This year, City analysts expect earnings to more than double (+120%), and to rise more than 20% in each of the following two years.
NCC’s promising growth outlook is further supported by restructuring initiatives that are boosting margins. These actions pushed gross margins to a healthy 38.2% in the six months to May.
The company faces significant competition that could limit long-term profits growth. Yet at current prices, I think it might be too cheap for me to ignore.