Have £5k to invest? Here are 5 stocks I’d buy for a FTSE 250 starter portfolio

Paul Summers picks five quality stocks from the FTSE 250 (LON:INDEXFTSE:MCX) he thinks would be suitable for long-term investors.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

A couple of weeks ago, I highlighted five stocks from the FTSE 100 I think are great long-term buys for those just getting started with investing. Today, I’m doing the exact same thing but with the market’s second division — the more UK-focused FTSE 250.

Once again, the emphasis will be on picking established, quality businesses with room to grow that also pay dividends.

High returns

While some might view kitchen supplier Howden Joinery as cyclical, I still think it warrants consideration from investors willing to look outside the FTSE 100. Howden sells kitchens to builders rather than homeowners, which means it should get repeat business, regardless of what’s going on with the economy. It also has a couple of things I’m attracted to when screening for stocks: a consistently high return on the money it invests in its business, and zero debt. 

The shares have had a very good run of late and I’d prefer to buy at a cheaper price, but it’s hard to rule out a firm of this quality. The yield is 2%.

Top brands

Like fund manager Terry Smith, I’m rather partial to companies selling small-ticket, branded items that are in demand during good times and bad. That’s why I particularly like stocks in the drinks industry.

The natural pick from the FTSE 250 for this sector would be Robinsons and J2O-owner Britvic. Recent results from the £2.6bn-cap weren’t exactly sparkling, due to problematic trading in France. But this should turn out to be blip rather than a crisis. The shares currently trade on a little less than 16 times expected earnings and yield 3.3%

Food on the go

If you regularly buy something at a station or airport, you’ll know just how valuable a captive market can be for a business. That’s why my third pick is SSP Group, which manages food and drink sites at busy travel locations. Its brands include Upper Crust and Ritazza, but it also manages Burger King and Starbucks outlets.

Perhaps, understandably due to the uncertainty surrounding how Brexit will impact the travel industry, it’s been a rollercoaster 2019 for the shares. However, the long-term trend is most definitely up. SPP’s shares trade on 21 times earnings and come with a 1.9% dividend yield.

Chunky yield

A combination of new regulatory hurdles and a lack of volatility in the markets have made the last couple of years pretty uncomfortable for online trading specialist (and market leader) IG Group.  

That said, recent performance has been far from disastrous and the forthcoming general election should be lucrative since traders will want to get involved in a potential ‘Corbyn crash’ or, perhaps more likely, ‘Boris bounce’. While not as cheap as they once were, its shares currently trade on a still-reasonable 17 earnings and yield a chunky 6.3%. 

Go small

All long-term investors should have some exposure to market minnows, in my opinion. That’s why my final pick is actually not a single company but a near-30-year-old FTSE 250-listed investment trust with 79 holdings.

While ongoing costs will be higher than if you were to adopt a passive investment strategy, the fact the Aberforth Smaller Companies Trust share price has grown annually by almost 13% since inception should compensate for this. Moreover, the Trust pays a dividend (most small-cap funds don’t) which, when reinvested, should help compound gains even further. 

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 owns shares of IG Group Holdings. The Motley Fool UK owns shares of and has recommended Britvic. The Motley Fool UK owns shares of SSP Group. The Motley Fool UK has recommended Howden Joinery 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.

More on Investing Articles

Person holding magnifying glass over important document, reading the small print
Investing Articles

I’d seriously consider buying this UK technology small-cap stock today

Today's positive trading figures and a runway of growth potential ahead make this small-cap stock look attractive to me now.

Read more »

Investing Articles

It’s October! Does this mean UK stocks are going to crash?

Whisper it quietly, but four of the five biggest one-day falls in the FTSE 100 have been in the month…

Read more »

Investing Articles

With new nuclear energy deals in view, Rolls-Royce’s share price looks cheap to me anywhere under £11.48

Rolls-Royce’s share price dipped after a problem on a Cathay Pacific flight but has now bounced back on positive news…

Read more »

Investing Articles

Is the Greggs share price now a screaming buy for me after falling 10% this month?

Harvey Jones watched the Greggs share price climb and climb, but decided it was too expensive for him. Should he…

Read more »

Young black colleagues high-fiving each other at work
US Stock

3 super S&P 500 stocks that could smash global ETFs over the next 5 years

History shows that allocating some capital to top S&P 500 stocks can significantly boost an investor's financial returns over the…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

This FTSE 250 insider’s selling but 2 brokers say “buy”. What’s going on?

A director of this FTSE 250 retailer has sold £114m of stock but brokers rate its shares a Buy. Our…

Read more »

Investing Articles

With a P/E of 7.7 is the Lloyds share price back in deep bargain territory?

Harvey Jones has enjoyed watching the Lloyds share price rise and rise over the last year, while its dividends are…

Read more »

Investing Articles

BP, Phoenix Group and Rolls-Royce are 3 shares Hargreaves Lansdown investors have been buying

BP shares have been attracting attention recently. But the oil giant's not the only stock UK investors have been snapping…

Read more »