The Motley Fool

Covid-19-hit FTSE 250 stocks that I’m avoiding

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.

Business development to success and FTSE 100 250 350 growth concept.
Image source: Getty Images

The Covid-19 pandemic hit certain parts of the markets harder than others. Entertainment, cruise lines, hospitality, and airlines were all understandably devastated. Fortunately, many stocks in these sectors have bounced back. While there are undoubtedly some great investments available in the FTSE 250, there are some I’m not yet tempted by.

Pubs are still struggling

FTSE 250 stock Mitchells & Butlers (LSE:MAB) is a pub company operating in the UK and Germany. Its well-known brands include All Bar One, Harvester, Innkeeper’s Lodge, O’Neill’s, Toby Carvery, and several more. The company also operates some property leasing.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

It has a £1.9bn market cap compared with rival Whitbread’s £6.9bn market cap. It’s been burning cash at a rate of between £35m and £40m per month, and its debt costs it around £51m per quarter.

It’s widely expected that there will be a rush on pubs and social entertainment once the lockdowns are lifted. But it’s likely to take a long time before Mitchells & Butlers becomes profitable again. The Mitchells & Butlers share price has recovered 70% in a year and is up 30% in the past three months. While this shows confidence in the company, it makes me nervous and reluctant to invest. The Covid-19 situation is still bad in many parts of the world, and we’re not out of the woods yet. I think this stock could easily plummet again if the path out of lockdown is slower than anticipated.

Signs of growth in polymer demand

Polymer production company Victrex (LSE:VCT) has had an easier year than many companies, but Covid-19 still affected the business in the second half of 2020. Lower production led to higher costs, but 2021 is showing signs of growth. It’s cash strong with debt facilities available if need be.

Polymer demand depends on the market for plastics. This is not slowing down with considerable growth opportunity in emerging markets.

The Victrex share price is up 5.6% in a year and down 11% in the past three months. The FTSE 250 company reinstated its dividend in December after seeing a notable improvement in demand from the auto, electronic, and medical markets. Its dividend yield is 2.2%. It has a £1.8bn market cap and forward price-to-earnings ratio is 26.

However, profitability is likely to be slow and as it’s a globally facing stock, Covid-19 remains a threat to its success. I’m not confident enough to jump into this stock yet, but will keep it on my watch list.

FTSE 250 tech stock

UK tech company Micro Focus (LSE:MCRO) has done rather well since the pandemic hit. Its share price is up nearly 40% in a year and 15% in the last week. Its share price is close to its 52-week high and last week the company announced it’s partnered with US tech stock success story Snowflake to deliver data-centric protection to international clients.

It has a £1.5bn market cap, dividend yield is 2% and earnings per share are negative. I like a tech stock with a dividend, but I find the company’s very high debt levels concerning. And tech is a cut-throat industry with plenty of stocks to choose from. The sector has been on a tear through 2020 and is now falling out of favour with investors. Therefore, I’m not tempted to buy Micro Focus shares today, but will keep an eye on its progress.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Kirsteen has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Snowflake Inc. The Motley Fool UK has recommended Micro Focus and Victrex. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.