A stock market crash is a great time to buy quality shares cheap, and many investors have been piling into FTSE 100 shares while the going is good. But if you look to the smaller FTSE 250 instead, I think you can find plenty more bargains there.
The FTSE 250 tends to be more attractive to growth investors. It’s a stopping-off point for those companies working their way up to the top tier, so that’s perhaps not surprising. It can be more volatile too, but that can be put to advantage when looking for oversold bargains.
Playtech (LSE: PTEC) is a good example. In the early days of the Covid-19 slump, the FTSE 100 quickly lost a third of its value. But over the same short timescale, the FTSE 250 fell more than 40%. And the Playtech share price crashed by 65%.
FTSE 250 recovery
But Playtech shares recovered way faster than the two indexes. They’re now only 11% down on the year so far. The FTSE 100 and FTSE 250 are pretty much tied on drops of approximately 20%.
Playtech, which provides trading software used by the gambling and finance industries, saw its price drop 8% Thursday on the release of first-half figures. Does that mean avoid, or does it just offer a better buying opportunity?
The hit is due to a 22% fall in revenue for the half, to €564m. Reported profit fell 85%, but the firm revealed an adjusted profit fall of a less painful 36%. That might not look great, but the company described the performance as resilient. And it reported an “exceptional” performance from its TradeTech division – though it looks like it will probably be selling off that business.
Playtech looks like an oversold FTSE 250 stock to me.
Speedy rebound
I was also drawn to Hilton Food Group (LSE: HFG), the international food packing business, on Thursday. The Hilton share price gained a couple of percent on the day, and has shown a better 2020 performance all round.
After an early dip, Hilton Food shares recovered quickly. The price is now 10% up since the beginning of the year, and the half-time figures show why. Revenue climbed 40% to £1,264.2m, with adjusted operating profit up 19.6% at constant currency.
Net bank debt did rise by 35%, but at £131.7m I’m really not concerned. The company lifted its interim dividend by 16.7% to 7p per share. So who says FTSE 250 shares are all about growth and not income?
Full-year outlook
Hilton confirmed that full-year results should still be in line with expectations. So we should see full-year EPS around 10% ahead, continuing the trend of recent years. If the final dividend is raised in line with the interim, we’d see a yield of around 2%. That’s not the biggest on the market, but I’d take a strongly progressive dividend over a higher but static yield any day.
We’re looking at two very different companies here, and I rate both as long-term buys.
