I am always looking for shares to buy for my portfolio. While many companies look overvalued to me at present, I think a handful of stocks in the FTSE 250 seem appealing, compared to their growth prospects.
Here are five stocks in the index that I would acquire for my portfolio today.
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FTSE 250 champion
Howden Joinery (LSE: HWDN) has some unique qualities that have enabled this enterprise to smash growth expectations. The company’s depot managers are responsible for sales and are rewarded if they can achieve growth. This essentially makes them business owners and encourages development ideas as well as cost-saving initiatives.
The decentralised structure has helped Howden grow rapidly over the past five years. It is now benefiting from rising demand for home improvement as consumers spend lockdown savings.
The current growth boom is unlikely to last. However, thanks to its competitive advantages and staff involvement in the business, I think the company’s growth will continue, albeit at a slower rate.
Some challenges it may have to overcome in the next few quarters are higher materials and labour costs. Supply chain disruption could also impact growth.
I would buy shares in the FTSE 250 company for my portfolio today despite these risks and challenges.
I think Howden is one of the best-managed businesses in the UK. I feel the same about baker Greggs (LSE: GRG). The company’s food may not be for everyone, but it is clear that the group has carved out a niche in the market, which it can defend fiercely.
What I am really excited about is the company’s growth plan for the next few years. It is looking to double turnover to “circa £2.4bn” by 2026. To meet this goal, management wants to open 150 stores a year from 2022 and grow the firm’s multichannel sales.
This is an ambitious target, but I think the company has a strong chance of achieving it. There is clearly a growing demand for its products. And Greggs has been investing heavily over the past few years to build out the infrastructure to meet higher demand.
Some of the challenges it may face over the next few months include food inflation, which management has said is already having an impact on margins. On top of this, as the group expands, it is only likely to encounter more competition.
Even after taking these headwinds into account, I would buy the company for my portfolio today as a growth play. With management looking to double revenues over the next five years, I think the stock could make a lucrative addition to my portfolio.
When I am looking for shares to buy for my portfolio, I like to focus on companies that have set out ambitious growth targets. This makes it easier for me to estimate how much the enterprise could be worth in the future.
Pets At Home (LSE: PETS) is one of those businesses. The company has laid out ambitious growth plans for the next few years to grow its retail business and “pet care ecosystem“.
To do this, the group is expanding its store estate, investing in its veterinary business, regenerating existing stores, and increasing visibility “by becoming a responsible corporate citizen”. I think this last point is the most interesting.
Pets At Home has launched a foundation to support animal charities. Not only should this initiative help increase visibility, but charities supported by the businesses may also be more inclined to purchase from the group.
On the business side, the company has been renegotiating contracts with landlords, securing rent reductions “typically in excess of 20%” and marketing its subscription services to pet owners. This initiative helped the corporation report a 35% increase in customer transactions for the first quarter of its 2022 financial year.
These are the reasons why I would buy the FTSE 250 stock for my portfolio.
Some challenges it could face as we advance include higher wage costs and regulations on pet ownership. Additional restrictions could increase administrative requirements and reduce profit margins.
Defensive shares to buy
Some investors like to avoid mining companies. I can understand why. This can be a risky and volatile business. If the price of the commodity being mined suddenly drops, the digger has no choice but to accept the lower price. Countless operations have collapsed due to this uncertainty.
That said, well-run miners can be excellent investments. With that in mind, I would buy Centamin (LSE: CEY) for my portfolio.
The Egyptian gold miner has low production costs and a strong, cash-rich balance sheet. On top of these factors, the stock also supports a dividend yield of 12% and trades at a forward price-to-earnings (P/E) of 10. I should note that the dividend yield of 12% is based on historical payout figures. So it may not accurately reflect future dividend potential.
Still, according to its latest trading update, the company is on track to hit its full-year production and cost targets. For the three months to the end of September, cash costs fell 4% to $846 per oz, and revenues rose 3% to $183m.
As its growth continues, I would buy this company as a defensive income play in an uncertain world.
The last stock on my list of FTSE 250 shares to buy is the refuse company Biffa (LSE: BIFF). It is often said that there are only two certainties in life: death and taxes. I would add a third, rubbish. Humans have always produced, and will always create, some form of waste. And disposing of this rubbish is becoming increasingly difficult.
That is where Biffa comes into play. The refuse group has the experience and economies of scale required to dispose of rubbish safely and efficiently. Group net revenues for the five months to August were 12% higher than the comparable period in 2019 and 3% excluding acquisitions. I think these numbers show that even during a pandemic, demand for refuse disposal is growing.
That being said, this is a highly regulated and controlled industry. Additional regulations and controls could impact profit margins and increase costs. If Biffa can’t pass these on, the group may encounter some turbulence. This could benefit Biffa, but it could also prove to be a risk to the firm.
Despite this risk, I would buy the stock for my portfolio today.