2 FTSE 250 growth stocks I’d buy and hold for the next five years

Paul Summers picks out two mid-cap stocks from the troubled retail sector he’d buy and hold for the long term.

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When you consider that it includes stock market dogs such as Debenhams and Mothercare — both having struggled to compete with online competitors — a lot of current investor hatred for the retail sector feels justified. Factor in fragile consumer confidence and you can see why so many businesses with a high street presence are worried about surviving, let alone thriving. 

Nonetheless, I think there are a number of diamonds in the rough for investors willing to adopt the Foolish maxim of buying quality stocks for the long term and doing little else. Here are two examples.

Overseas expansion

Today’s pre-AGM update from JD Sports Fashion (LSE: JD) will no doubt please those who had the courage to invest in the company during the fairly frequent dips in its share price over recent months. In addition to reminding the market of JD’s record results for the previous financial year, executive chairman Peter Cowgill stated that management confidence in its prospects over 2018/19 had not altered since April. This was then followed by encouraging news on the £4.2bn-cap’s progress overseas.

In accordance with its target of opening an average of one site per week, 18 new stores have been unveiled across Europe over the period to 23 June. Another 16 stores have been added in the Asia Pacific region (including the company’s first forays into South Korea and Singapore), although 75% of these were conversions from fascias operated by partners. The recent purchase of US-based retail chain Finish Line is another example of just how much potential JD has in international markets.

In addition to the above, it’s also worth highlighting that the company’s finances remain robust with a net cash position of £130m at the end of the previous financial year. Most retailers would kill for this, hence why I continue to regard JD as an excellent hold for growth-focused investors. 

That said, the 30% rise in value since the beginning of April means the shares aren’t the bargain they once were and are unlikely to gallop ahead between now and when interim numbers are delivered in September.

For those with a more value-focused approach, I suggest taking a closer look at another FTSE 250 constituent.

Super cheap

I continue to be blown away by the market’s dislike for Superdry (LSE: SDRY) given that its ‘problems’ appear nowhere near as pronounced as other retailers. The stock has now fallen no less than 45% from the all-time highs reached in January, leaving it on a valuation of just 10 times forecast earnings for 2018/19.  That looks screamingly cheap to me.

Sure, May’s pre-close trading statement could have been better. A decline in full-year gross margins, partly the result of cutting prices in an attempt to lower inventory levels, wasn’t going to please the market. Nor was the cut in revenue guidance for the next 12 months as a result of “ongoing challenging conditions in stores“.

Relative to peers, however, Superdry appears in good shape. Cash flow looks healthy, dividends look safe, management is continuing to invest for the future and the company is debt free.

The business confirms full-year figures on July 5. While a further drop can’t be ruled out, I’d be surprised if it was significant, simply because the market’s treatment has already felt unnecessarily harsh. As such, my finger remains poised over the ‘buy‘ button.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Superdry. 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.

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