Stock market crash: Why I’d buy this FTSE 250 contrarian stock now

The FTSE 250 index has weakened in the past days, but there are still investing gems to be unearthed, particularly because they are still struggling.

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Business development to success and FTSE 100 250 350 growth concept.

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The FTSE 250 index has weakened a bit in September after inching up last month. This is not surprising. Coronavirus cases have surged again, leading to new restrictions on public activity. There is danger that Brexit arrangements will break international law. Improvement in economic activity, while still steady with a 6.6% growth in July, has tapered from the month before. It remains to be seen if this increase can be sustained post-October when the furlough scheme is withdrawn. 

Opportunities in the slow down

In a nutshell, uncertainties abound. There may even be another stock market crash. However, it can still be an opportunity for investors, as we at the Motley Fool have been reiterating in the past months. I’m of the view that the best bets right now are beaten down stocks like Britain’s food services businesses, which include pubs and restaurants among others. 

The reason is simple. All sectors involving high footfall have been among the worst affected by the lockdown and their stock prices by the ensuing stock market crash. A combination of personal precaution and ongoing government restrictions are still having an effect. From aviation to hotels, the impact is quite evident. The same is true for food services. According to the ONS’s latest GDP data, accommodation and food services have seen the biggest hit among all services’ sectors. The segment’s GDP is at 40% of the February number, compared to over 90% for real estate, as an example.

Disappointing as this is, I think the sector is due for a comeback. I reckon that this will happen in time, even if it’s due for some short-term pain. In other words, long-term investing in food business could be a winning decision. The FTSE 250 offers a range of choices to buy from in the segment. 

FTSE 250 stock to buy

One example is the 80-year-old Greggs (LSE: GRG), the largest bakery chain in the UK. The FTSE 250 company had to close down all shops in the lockdown and lifted its shutters only in June. Its share price hasn’t picked up sustainably since the stock market crash, and it’s entirely possible that it will remain muted in the near future. However, I’d ask you to consider it from the perspective of long-term investment. In time, the lockdowns will lift, economic uncertainty will be behind us and life will be back to business as usual. I reckon that the food business will be back with a bang then. 

Already, the company’s trading update from July shows optimism. It says that company-managed shops reached 72% of their 2019 sales levels in the last week of July. It expects the business to break even when it hits 80% of its 2019 levels. It’s also optimistic about its long-term growth, though social-distancing has affected its business. If I were looking at buying a FTSE 250 stock that will stand the test of time, I’d seriously consider this one. And buy some more of it if there’s another stock market crash. 

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 considered so you should consider taking independent financial advice.

Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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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