2 FTSE 250 stocks I’d buy with £1,000

The FTSE 250 has underperformed the FTSE 100 year-to-date. But these two stocks look too good for me to ignore.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The FTSE 250 has underperformed the FTSE 100 so far this year. In fact, while the FTSE 100 has managed to deliver returns of 1.5% year-to-date (although it’s up 9% in 12 months), the FTSE 250 has fallen over 11% (and 7% in a year). This may be due to the larger number of growth stocks in the FTSE 250, which have suffered considerably from inflation so far this year. But for me, this has created an opportunity to buy some FTSE 250 stocks. These two are a couple of my current favourites I’d buy with £1,000. 

A housebuilder with a high dividend yield 

Despite the rising interest rates, and inflation, property prices continue to reach new peaks and demand remains strong. Due to the shortage of housing in the UK, there is also an emphasis on housebuilders building more houses. These factors meant that Vistry (LSE: VTY) was able to deliver an excellent set of results for the full-year. For example, it recorded profits after tax of £346m, up over 100% year-on-year. It also ended the half year with a net cash position of £234.5m, which was far ahead of expectations, and much higher than last year.

Most noticeably, after not paying a dividend last year, the company raised the total ordinary dividend to 60p per share. At the current Vistry share price, this equates to a yield of 6.7%, a lot higher than most other FTSE 250 stocks. With a two-times dividend cover, it is also well-covered by profits. This allows reinvestment in the company. 

The future also looks bright, with the company expecting even higher profits in 2022. Hopefully, this may even see more dividend increases. 

However, there are a couple of factors that could disrupt this. Firstly, many believe that house prices may have reached their peak, especially as interest rates are rising. If house prices fall, Vistry profits are likely to drop. Secondly, post-Grenfell, the government is seeking to remove all unsafe cladding, and Vistry may have to contribute to these costs. This would hurt operating margins. 

But the FTSE 250 stock trades on a price-to-earnings ratio of 7 and a price-to-book ratio of under 1. This makes me think that the shares are too cheap, so I may add more to my portfolio. 

A FTSE 250 growth stock

Darktrace (LSE: DARK) went public in 2021. The cyber-security firm had an excellent start as a public company, with the share price more than doubling to reach 950p in October last year. But it is currently price at just 360p. This is partly due to the company’s previous sky-high valuation, alongside inflation worries and unprofitability. 

Despite this, the firm is exceeding expectations. Indeed, in the third-quarter trading update, it added 359 net new customers, for year-on-year growth of 37%. Further, total revenue in the period was up 50% to $109.8m, meaning that the firm upgraded full-year expectations to revenue growth of between 45.5% and 47%. It may, therefore, be surprising that the Darktrace share price fell considerably on the back of these results. 

But the reason for this share dump was news of an impending sale from staff, as the second post-IPO lock up on 85.5m employee-held shares ends on May 1, with around 20m shares expected to be sold. This may show a lack of confidence. However, the growth prospects of the company seem too strong to ignore, and this is a FTSE 250 stock I’d happily add to my portfolio.

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.

Stuart Blair owns shares in Vistry. 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.

More on Investing Articles

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »