I have been looking for FTSE 250 shares to buy for my portfolio over the past couple of weeks. I am looking for companies with the potential to compound shareholders’ capital consistently for the next decade.
These businesses are few and far between as not many will be able to maintain their competitive advantages for the next 10 years. Numerous companies in the FTSE 250 are cyclical businesses, which struggle when times are hard.
Only a few organisations have the qualities required to ride out the peaks and troughs of the economic cycle. With that in mind, here are three shares I would buy for my portfolio to hold until 2030.
FTSE 250 international giant
The first company on my list is international shipping broker Clarkson (LSE: CKN). I think this business has a tremendous long-term outlook as the shipping industry continues to expand. A combination of rising trade volumes and low levels of capacity has sent demand and prices surging across the industry.
As a result, Clarkson’s profits have also jumped. According to its latest update, trading in December was “stronger than anticipated“. The company is now expecting to report pre-tax profit for the 2021 financial year of more than £69m.
To put this figure into perspective, due to the volatility in the global shipping market throughout the pandemic, the company lost a total of £41.7m during 2020 and 2019.
Clarkson fulfils vital roles in the global shipping industry. It helps companies buy and sell ships, arrange financing for new vessels, and predicts future industry trends. Therefore, the group has multiple defensive qualities. Shipping corporations rely on its research and services to help them manage their operations.
These are the qualities I believe will help the business prosper over the next decade. As well as its growth prospects, the stock also offers a dividend yield of 2.2%, at the time of writing.
The biggest challenge the company will face as we advance is competition. Clarkson is a leading enterprise in the shipping sector, but it is not the only operator. It will have to fend off competition from challenges, who may want to grab market share from this FTSE 250 enterprise.
Shares to buy for growth
One of the most defensive sectors of the market is utilities. As there will always be a demand for electricity and water, so companies in this sector will always have a guaranteed market.
That is the primary reason why I would acquire Drax (LSE: DRX) for my portfolio of FTSE 250 shares. The corporation is the largest publicly-traded power plant operator in the UK. In recent years, it has transformed its facilities to burn biomass rather than hydrocarbons to help it meet the UK’s strict climate change commitments.
Thanks to its position in the market, Drax has capitalised on surging UK energy prices over the past six months. The company sells its power on forward contracts, which are agreed far in advance. Therefore, it has not benefited from rising power prices immediately. Nevertheless, the corporation has been able to lock in higher prices for 2022 and 2023.
It seems likely this initiative will produce a windfall for the enterprise in the years ahead. City analysts expect earnings per share to rise 121% next year.
Unfortunately, I do not think it is sensible to suggest that this environment will last indefinitely. Power prices are likely to fall sooner or later, which will impact the company’s earnings potential.
Still, in the long run, the group’s biomass and pumped storage generation assets will play a vital role in the UK energy transition. The assets will help the country stabilise the electricity grid during periods of low renewable energy generation.
Thanks to this crucial position in the energy market, I think the company will prove to be a solid investment for my portfolio over the next decade. The stock also offers a dividend yield of 3.2%, at the time of writing.
Risks Drax could have to deal with in the months and years ahead include higher input costs for its biomass power plants. Higher costs could eat away at profit margins. Regulators may also restrict how much profit the group can generate and place stricter environmental requirements on the enterprise. All of these challenges could increase costs and reduce growth.
FTSE 250 retailer
The final company that makes it onto my list of FTSE 250 shares to buy for the next decade is Pets at Home (LSE: PETS).
The UK pet population has exploded over the past couple of years, leading to a surge in demand for related products. Historically, the pet and pet care industry across the UK has been highly fragmented, with small stores and partner-owned vets making up the bulk of the market.
Pets at Home is changing this. It is consolidating the market and using its size and scale to grab market share. It has also rolled out a series of online and subscription products to crystalise its position in the minds of consumers.
Considering its position in the market and the general lifespan of pets, I think the company will remain a force to be reckoned within the retail industry for the next decade. There is also plenty of room for the group to continue expanding in the market as it takes over smaller peers.
The most significant risk to this growth is that of competition. Considering the organisation’s success, I do not think it will be long before competitors start to attack. Private equity and venture capital companies could launch their own pet-focused retailer and begin to nibble at the group’s market share.
Even after taking this challenge into account, I would be happy to buy the FTSE 250 stock.
Rupert Hargreaves 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.