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

There are some great FTSE 250 stocks, but some that have been affected by the pandemic could take a long time to recover.

| More on:

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.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your 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.

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.

More on Investing Articles

Female florist with Down's syndrome working in small business
Investing Articles

2 promising penny stocks to buy on the dip

As stock markets continue to correct, I am hunting for oversold penny stocks that I think could help turbocharge my…

Read more »

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

I wouldn’t buy Bitcoin today. FTSE value stocks look much better value to me

Now looks like a promising time to buy UK value stocks, while Bitcoin still looks far too risky for me.

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

The Rolls-Royce share price is below 85p. Here’s what I’m doing!

The Rolls-Royce share price has suffered this year. Trading for below 85p, this Fool decides whether this is an opportunity…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

4 dividend stocks to buy as inflation soars!

I'm hunting for the best dividend stock to invest in as global inflation soars. Here are several high-dividend-yield shares that…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

UK shares to buy now: 3 big fallers I’d snap up

Our writer thinks this trio of strong business performers could be attractive UK shares to buy now for his portfolio.

Read more »

Lady researching stocks
Investing Articles

Could a falling stock market help me get rich?

When the stock market falls, what does it mean for our writer's portfolio? Here's why it could be an opportunity.

Read more »

Hand holding pound notes
Investing Articles

Should I buy these two 12%-yielding dividend shares for my Stocks and Shares ISA?

Do these double-digit dividend yielders offer our author the right balance of risk and reward for his Stocks and Shares…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 reasons to buy Lloyds shares at 43p

Our writer outlines three factors that make him bullish on Lloyds shares, as well as one noteworthy risk facing the…

Read more »