Next month will see several stocks added to the FTSE 250 index. Since admission is often accompanied by a rising share price (as funds are forced to buy in), I’m going to look at whether now could be a good time to load up on two very likely candidates for promotion.
Bridgepoint: FTSE 250 bound
Private equity group Bridgepoint‘s (LSE: BPT) inclusion in the FTSE 250 looks nailed on to me. Having arrived on the market last month, shares have already rocketed from their listing price of 350p to 520p.
Rather conveniently for a company entering the UK’s second tier, Bridgepoint focuses on investing in the mid-cap space. Already managing roughly €27bn of assets, the money raised from July’s IPO should give the company plenty of ammunition for an acquisition spree. And one could argue that there’s never been a better time to go hunting with plenty of UK firms still reeling from the pandemic.
As a potential buyer of the stock, I’m just wondering whether we could see it lose some steam over the next few weeks as the IPO shine wears off. This is a trend we’ve seen in some stocks in 2021, most notably across the pond. Knowing that the company’s original owners offloaded a whole heap of stock as it arrived on the market, while understandable, isn’t ideal either.
Still, one can’t deny that the shares haven’t done well so far. The listing of a private equity group is also rare, giving BPT some novelty value for retailer investors like me. If FTSE 100 peer 3i Group is anything to go by, the long-term returns could be rather tasty.
On balance, though, I’m happy to sit on the sidelines for now.
West African-focused Endeavour Mining (LSE: EDV) also looks primed to join the FTSE 250 following its recent London listing.
In addition to several promising exploration projects, EDV already has mines operating in Senegal, Cote d’Ivoire, and Burkina Faso. Collectively, these help the company to feature in the top 10 of global gold producers.
This month’s Q2 update suggested the company was firing on all cylinders. Gold production rose 18% in the previous quarter while costs fell. As a result, EDV now thinks it can hit the top half of full-year guidance.
While the shares haven’t performed as well as those of BPT, some in the market are very bullish. Broker Berenberg, for example, has a target price of 2,800p on the stock. That would be a rise of 60% from today’s share price. Although an ambitious goal, inclusion in the FTSE 250 won’t do the firm’s profile any harm.
Then again, one does need to be conscious of the risks. As any Fools who remember what happened in 2016 will know, mining can be a highly cyclical sector. In addition to the difficulties and costs encountered in digging up precious metals in politically sensitive regions, those doing so are never in control of how much the shiny stuff sells for. And, over the last few months, the gold price has performed poorly despite concerns over inflation.
Given that I already have exposure to gold miners via a low-cost exchange-traded fund, EDV is not for me right now. However, an improving balance sheet (net debt fell by $85m during the quarter to $77m) and dividends make it one I’ll keep an eye on.
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Paul Summers 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.