I think some of the best shares to buy today are located in the FTSE 250. This mid-cap index is full of growth stocks that some investors may be overlooking due to their smaller size. I believe that is a mistake.
As such, here are five FTSE 250 stocks that I would acquire for my portfolio today.
Shares to buy today for growth
The first company on my list is home services group Homeserve (LSE: HSV). Over the past decade or so, this organisation has grown steadily through a combination of acquisitions and organic growth across the UK and North America.
Homeserve has built a group of home improvement and maintenance businesses, providing consumers with a one-stop-shop for services. Revenues have increased at a compound annual rate of 16% since 2016, and as consumers continue to splash out on their properties, I think this trend will continue.
Unfortunately, the group suffered a setback last year as profits plunged more than 70%. However, analysts are forecasting a rebound in the current financial year, and they believe growth should return in 2023.
Some challenges the company may face, which could hamper growth, include competition and rising prices for acquisitions. Despite these risks and challenges, I would buy the stock for my portfolio of FTSE 250 shares today.
On the home improvement front, I would also acquire engineered door and window components supplier Tyman (LSE: TYMN).
The current building boom is landing this business with windfall profits. Earnings per share are projected to increase by 57% this year and a further 6% in 2022.
According to the company’s half-year report, it is benefiting from both high levels of demand and higher prices. This is giving management the resources required to increase market share across North America, including the funding needed to develop new products.
I do not think Tyman’s current growth rate is sustainable, but if the company is able to reinvest its windfall back into expansion initiatives successfully, the enterprise’s growth should continue. Albeit at a lower rate.
And after a bumper 2021, Tyman’s potential over the next few years has improved dramatically.
But there are still risks. Challenges that could hold back growth include competition and a housing market slowdown. Rising costs may also weigh on profit margins.
FTSE 250 hospitality
Like every other hospitality business in the UK, JD Wetherspoon (LSE: JDW) struggled during the pandemic. But the company is now on the road to recovery. For the first 15 weeks of its financial year, sales were 8.9% lower than the same period in 2019.
The speed of the recovery differs significantly across the group. City centre locations such as Oxford and Newcastle have recorded double-digit growth compared to 2019 levels.
However, trade in central London, airports, stations, and regions of the UK where restrictions apply, means activity there is still down by a double-digit percentage compared to 2019 levels.
Therefore, it looks as if Wetherspoon still has some way to go before it can claim to be back on track. Still, I think this FTSE 250 hospitality giant is an attractive way to invest in the UK economic recovery.
Risks to my investment case include rising staff costs and a squeeze on consumers’ income due to inflation. There is also the potential for further coronavirus restrictions, which may derail the recovery.
Property shares to buy
Another recovery play I would buy is real estate investment trust (REIT) Shaftesbury (LSE: SHB).
Due to the pandemic, the central London landlord was forced to write down the value of its property portfolio last year. It also struggled to collect rent from tenants that lost virtually all of their business overnight when forced to close.
The good news is, business activity in general and central London are now recovering. This is having a knock-on effect on commercial property values. According to a trading update published at the end of October, Shaftesbury’s portfolio increased in value by 5% during the second half of its 2021 financial year.
What’s more, by the end of September, just 2.9% of the portfolio was available to let, down from 8.4% at the end of March.
These figures appear to show that tenants are returning to central London, and the value of the company’s property portfolio is appreciated as a result.
I would buy the REIT today based on these numbers even though further coronavirus restrictions could significantly impact commercial property values, and many tenants may not survive another lockdown. This is probably the most considerable risk to the company’s growth right now.
Frasers Group (LSE: FRAS), formerly known as Sports Direct, suffered a loss of £83m last year. However, analysts are expecting profits to rebound this year and grow further in 2023.
Heavy investments in the group’s online division helped it weather the Covid storm, and this online business is now helping drive the recovery. Management is so confident about the group’s prospects it is returning cash to investors with a share repurchase programme. This should help improve earnings per share, and the company’s overall valuation.
At the time of writing, the stock is dealing at a forward price-to-earnings (P/E) multiple of 19.3. According to current analysts projections, this could fall to 17.3 next year.
Evidence shows that consumers tend to trade down to lower-priced commodity products in periods of high inflation. With inflation set to hit 5%, Frasers’ Sports Direct business could possibly benefit from this trend. I would buy the stock for this potential as well as the reasons outlined above.
Some challenges the group may face as we advance include rising costs due to inflation and further coronavirus restrictions.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Homeserve. 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.