As the UK economy continues to rebound from last year’s slump, I’ve been looking for FTSE 250 stocks to add to my portfolio. Here are two companies I think should benefit from the economic recovery.
FTSE 250 growth
The first on my list is drinks group Britvic (LSE: BVIC). As the economy has opened up, consumers have flocked to restaurants and cafes around the country. Other hospitality businesses such as theme and leisure parks have also reported strong demand.
I think this could translate into strong sales growth at the FTSE 250 company. Indeed, while the business has expanded its ‘at home’ sales channel over the past year, sales to the hospitality industry still account for a large percentage of revenues.
Reported revenue decreased 6.3% for the six months ended 31 March 2020, due to pandemic restrictions. However, management has already said trading in the first few weeks of April, when hospitality businesses began to reopen, was “encouraging.”
As such, I think Britvic should see a strong recovery in sales this year. That should translate into higher earnings and, as a result, a higher share price. In the meantime, the stock supports a dividend yield of 2.3%.
Despite its opportunities, the company faces risks as well. These include competition and rising prices. The former could lead to reduced sales, and the latter could depress profit margins. Both of these drawbacks could impact the group’s dividend plans.
Still, considering its recovery potential, I’d buy the FTSE 250 stock for my portfolio.
PZ Cussons (LSE: PZC), which counts the Imperial Leather soap brand as one of its primary products, has faced mixed fortunes over the past 12 months. Higher demand for its cleaning brands has offset reduced sales elsewhere in the business.
The company is reinvesting its windfall profits back into the business, increasing marketing and using additional cash to reduce net debt. At the end of February, net debt was £35m, down from £116m a year ago.
I’m also encouraged by the FTSE 250 company’s new CEO. Jonathan Myers joined the company in May, and he’s the first boss to come from outside the enterprise. I think his involvement may bring some new thinking to the business. Therefore, I believe now could be an excellent time to buy the stock as the new CEO starts to make his mark.
Unfortunately, as well as this opportunity, the company also faces risks and threats. Like Britvic, these include competition and the potential for higher costs. What’s more, PZ Cussons’ African division, which accounted for around 36% of sales in the first quarter, has been relatively unreliable in the past.
For example, in the company’s most recent quarter, revenues at the African business increased 3.2%, but adverse currency movements almost wiped out this growth. After currency movements, sales declined 7%.
Even after taking this risk into account, I’d buy the stock and its 2.3% dividend yield today.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Britvic and PZ Cussons. 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.