2 FTSE 250 stocks that I think could soar like the GameStop share price in 2021

After the roller coaster surrounding the GameStop share price this week, Jonathan Smith looks for some UK stocks that he thinks could grow this year.

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.

sdf

The incredible news surrounding the GameStop share price has generated a surge in attention around mid-cap stocks. The short story is that the share price has risen from $20 to around $400 in one month. There are various reasons behind this incredible rise, not least the power of the retail investor.

As a retail investor myself, it gets me excited to try and find other stocks that have the potential to take off this year. I want to stay closer to home, so I’ll be focusing on FTSE 250 stocks.

Impossible to replicate the GameStop share price move

The move seen in the GameStop share price this week was an exceptional event. Therefore, I’m not claiming to be able to buy stocks that offer those gains in that timeframe. However, I am looking for higher-than-average returns.

In order to try to beat the market, I’m looking at a contrarian investing strategy. That means I want to find undervalued companies, with a falling or low share price. I also want to identify stocks that are being shorted. But, buying a heavily shorted stock is risky, so I need to keep those risks top of mind.

The GameStop share price had 139% of short interest earlier this week. This meant that more than all the available shares (100%) were actually being used to short the stock. This is extreme, and I don’t think it’s sensible to be this aggressive when looking for stocks that are temporarily unloved. Among the top 10 most shorted stocks in the UK are Metro Bank and Royal Mail.

The main risk to me buying any of the above stocks is that the share price could fall. This fall could be sharper than with other stocks, as selling can intensify in a short time period. Even the GameStop share price experienced sharp falls in the past, before rallying higher.

FTSE 250 stocks to look at

Metro Bank is the most shorted stock at the moment in the UK, with short interest of 14.55%. The share price has almost halved compared to this time last year. However, I think that the share offers good value. For example, the bank recently sold £3bn of its mortgage book to NatWest Group. This offloaded debt and also boosted liquidity at the same time. The move ensured that Metro met its regulatory capital requirements, and meant that it didn’t need to raise more capital through added debt. Those are both positives. I’m still cautious about NatWest Group, though, given its accounting blunder in 2019.

Royal Mail is also in the top 10 most shorted UK stocks. However, the share price isn’t under as much short interest as the GameStop share price. It’s actually up 100% in the past year. I like the stock as the transformation strategy to focus on the growing parcel sector takes shape. The cost cutting of 2,000 jobs is expected to save £130m come March, which will boost liquidity. However, I am also concerned in that it will likely report a loss for 2020. It also has risk due to the stiff competition in the delivery market.

Yes, there is the risk of underperformance for both these stocks, as with any stock, but risk tolerance is very personal. Overall, I think Metro Bank and Royal Mail have the potential to surge higher this year, and I’m comfortable with their risks.


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.

jonathansmith1 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.

More on Investing Articles

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

With a 30% increase since the start of the year, does the Barclays share price still offer good value?

In light of an impressive Barclays share price rally, our writer considers the attractiveness of the bank’s stock relative to…

Read more »

British coins and bank notes scattered on a surface
Investing Articles

How much passive income could we earn from UK shares with just £10 per day?

Even with modest amounts of money to invest, we can still consider investing in the UK stock market to generate…

Read more »

Night Takeoff Of The American Space Shuttle
Investing Articles

3 booming growth shares in the Scottish Mortgage portfolio

Our writer highlights a diverse trio of red-hot shares from the portfolio of Scottish Mortgage Investment Trust. Are any worth…

Read more »

Businessman using pen drawing line for increasing arrow from 2024 to 2025
Investing Articles

2 growth stocks absolutely smashing the FTSE 100

If you think the wider FTSE 100 is having a good year (and it is), check out the gains holders…

Read more »

UK financial background: share prices and stock graph overlaid on an image of the Union Jack
Investing Articles

FTSE 100: next stop 10,000?

As the FTSE 100 briefly hits 9,000 points, investors are already looking forward to when the next 1,000-point level might…

Read more »

Investing Articles

Is Burberry ‘back’ as a solid update drives its shares to 17-month highs?

Burberry shares have risen by more than 60% since May's forecast-beating financials. Can the FTSE 250 luxury giant keep rising?

Read more »

Two gay men are walking through a Victorian shopping arcade
Investing Articles

The Burberry share price continues to rise despite falling sales!

Our writer looks at how the Burberry share price responded to the company’s first-quarter trading update, which was released earlier…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

What a crazy day for the share price of this FTSE 250 retailer!

Our writer’s taken time to digest the latest results of the FTSE 250’s Frasers Group. And he likes what he…

Read more »