How I’d invest £1,000 in beaten-down FTSE 250 shares before the 5 April ISA deadline

The FTSE 250 index is home to many high-quality shares. With the new tax year approaching, Harshil Patel looks for some mid-cap bargains.

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It has been a rocky few months for FTSE 250 shares. The UK mid-cap index is down by 13% so far this year. The tragic events in Ukraine and signs of an economic slowdown have pulled shares lower.

Despite recent weakness, the longer-term prospects for the FTSE 250 could be much better over the coming months and years.

For instance, over the past decade, it produced an annual return of 8.4%. That’s enough to turn a £1,000 investment into £2,240.

That said, it’s important to remember that past performance can’t predict the future. But with so many good-quality and growing companies in the FTSE 250, I reckon it has great potential. And with the Stocks and Shares ISA deadline fast approaching, I’ve got until 5 April to use my allowance before it’s gone for good.

Fantasy shares

So if I added £1,000 to my ISA right now, what should I invest in? To spread my risk, I’d consider splitting it between a few carefully selected shares. I’m currently looking to add these FTSE 250 shares to my watchlist.

First, I’m looking at fantasy miniature firm Games Workshop (LSE:GAW). Its share price has almost halved since September. But the company remains a highly profitable, cash-generative business with excellent earnings growth. Yes, there could be some further cost pressures but I reckon this high-margin business will manage.

What I find remarkable is that its share price is now trading at the same level as before the pandemic. Yet, it has grown sales by 28% since then and now earns 48% more in profits. For such a high-quality and growing business, I’d say the shares are cheap.

A FTSE 250 top pick

The UK is home to several excellent housebuilder shares. One from the FTSE 250 that stands out is Vistry (LSE:VTY). It’s a great example of a stock that has demonstrated an above-average annual return over the past decade, but where its share price has lagged in recent months. So far this year, its share price is down by 15%. I think it’s an opportunity for me to buy a quality share at a reasonable price.

It recently reported excellent progress across all areas of the business. It saw gains in the total number of completions and gross profit. Looking forward, Vistry expects to deliver its 2022 target of at least £1bn in sales and an impressive 40% return on capital employed. I like that it’s also supported by a juicy 7% dividend yield.

Bear in mind that it’s seeing some increased labour costs, but so far, its supply of materials and staff is stable. Also, demand for new housing is related to affordability and the availability of mortgages. An economic downturn or significant jump in interest rates could have a material impact on Vistry’s sales. That said, it has been in business for many years and has managed through several economic cycles.

Overall, I reckon it’s a quality business that I’ll definitely add to my watchlist.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harshil Patel has no position in any of the shares mentioned. The Motley Fool UK has recommended Games Workshop. 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.

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