Despite a recent rally in the past few weeks, the FTSE 250 is down by roughly 25% since the start of the year. I believe this has created some great buying opportunities for value investors who are looking to purchase stocks at a price below intrinsic value.
FTSE 250 stocks
The FTSE 250 might offer better prospects for growth than the FTSE 100. The FTSE 250, which sits below the FTSE 100, contains the UK’s next 250 biggest listed companies. Legendary investor Jim Slater spent a great deal of time focusing on smaller companies and noted that “elephants don’t gallop”. He believed that large companies were unlikely to achieve the substantial growth that a smaller company stocks might offer.
Both FTSE 100 and FTSE 250 stocks have been hammered by the COVID-19 crisis. However, by looking back, we can see that the FTSE 250 has weathered the storm better than the FTSE 100. In the past five years, the FTSE 100 has fallen by 17%, whereas the smaller index has dropped by 7%.
I believe the following two companies could offer an investor good prospects when this market crash ends.
Britvic
I love consumable stocks. When people cut back on unnecessary and luxury spending, they will look at their high-cost outgoings. Small-ticket items are usually the last place to get scrutinised by even the most frugal customers.
The Britvic (LSE: BVIC) share price has fallen by 23% since the start of the year. This brings its price-to-earnings ratio to just under 12. The company is one of the leading soft drinks businesses in Europe. Some of its brands include Robinsons, Tango, Fruit Shoot, and J2O in its portfolio.
The company anticipates its revenue could take a “material hit” from the coronavirus. This is due to the announced closure of trade outlets and restrictions in people movement. Before the outbreak, trading was “broadly in line with expectations”.
Relative to its peers, I still believe Britvic is trading at a price below its intrinsic value. Although these are uncertain times, for longer-term investors now could be the time to pick up a bargain.
Pets at Home
In the year to date, the Pets at Home (LSE: PETS) stock price has dropped by approximately 7%, broadly in line with the FTSE 250 index. This might have been because pet shops and vets were deemed essential during the coronavirus outbreak and allowed to remain open. However, Pets at Home has confirmed the shut down of some non-essential parts of its business during the pandemic – like its Groom Room grooming salons – and has implemented government advice about social distancing.
In its full-year 2020 trading update, the group stated that it had experienced “exceptional levels of demand, both in-store and online”.
Consequently, Pets at Home now expects “pre-tax profit for the full year to be slightly above the top end of the range of current market expectations”. This increase in demand is mostly down to customers bringing their orders forward.
The group was well-positioned to meet above-trend levels of demand due to “previous investments in omnichannel capacity, new customer acquisition channels and subscription services”.
As most of Pets at Home’s operation is still trading and its profit is above expectations, I believe the market is currently under-pricing this stock.
