The FTSE 250 index has climbed 11.5% so far in 2021. Given that most of its companies are focused on their home market, that’s a mark of renewed confidence in UK plc. Picked carefully, however, I think I may be able to generate an even better return over the rest of the year by focusing on its best stocks. Here are two examples.
FTSE 250 recovery play
Before mid-March, shares in high-performance polymer producer Victrex (LSE: VCT) had been reluctant to take part in the recovery. Since then, they’ve climbed almost 30% in value as demand has bounced back. Based on last Friday’s Q3 management statement, I think this momentum should continue.
Last week, the FTSE 250 company said that it had “delivered a strong quarter” over the three months to the end of June. Group revenue now looks to be back on track after last year’s disruption in all of the company’s markets.
Looking ahead, the resurgence in business seen to date and a “robust” order book for Q4 now mean full-year numbers should be closer to “the upper end of market expectations”.
Naturally, there are potential bumps in the road ahead. According to Victrex, these include rising prices of materials, currency headwinds and the inevitable need for ongoing investment. Moreover, the shares aren’t cheap at 32 times FY21 earnings (falling to 27 times in FY22).
However, Victrex’s quality goes some way to justifying this valuation. It had £88.3m in cash at the end of June, has now reinstated dividends and consistently posts great margins and returns on capital.
I’m also excited by the company’s growth potential via its ‘mega programmes’. These include the use of the company’s PEEK products in new applications such as knee replacements. Last Friday, it was announced that five patients had now been implanted with ‘PEEK Knees’ via its partner Maxx Orthopedics. Although still early days, no issues have been reported so far.
Still around 20% below its all-time price high, I see more upside for this stock and would be comfortable adding to my current stake.
Share price momentum
A trading statement from FTSE 250 soft drinks giant Britvic (LSE: BVIC) is due later this month. Based on its performance in 2021 so far, I don’t think investors should have much to fear. Those buying in January will have already enjoyed a gain of around 20%.
Sure, the share price won’t double overnight and there’s an opportunity cost to consider. It can be tempting for me to prioritise racier stocks over one that should provide steadier performance.
Nevertheless, Britvic strikes me as a great, defensive pick and one I’d buy regardless of what economists and analysts were saying about interest rates, inflation and the like. It’s got a portfolio of easily recognisable, ‘sticky’ brands that shoppers both like and will buy through habit. This makes earnings far more predictable than your typical tech stock. There’s also a 2.4% yield, easily covered by profits, to consider.
Back in May, Britvic reported that trading in the first weeks of H2 had been “encouraging“. As such, some of the Covid recovery is surely already priced in. Even so, I think a full return to normality in bars, pubs and restaurants should allow it to breach its previous record share price high before too long.
I’d be happy to add Britvic to my own portfolio today.
Paul Summers owns shares in Victrex. The Motley Fool UK has recommended Britvic 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.