A FTSE 250 stock that could soar on a weaker pound

Victrex, a leading polymer producer, gets 99% of its revenue from outside of the UK – meaning this FTSE 250 stock could protect my portfolio from the plummeting pound.

| More on:
Family in protective face masks in airport

Image source: Getty Images

The pound has dropped 12% against the dollar over the last year, which has prompted me to eye up a FTSE 250 stock that could profit from weakening sterling.

Last week, the Financial Times’ personal finance editor Stefan Wagstyl noted the pound’s precipitous plunge against the dollar before recommending readers sell off FTSE stocks and load up on foreign securities.

She wrote: “The global equity sell-off has hit the UK far less hard than rivals…UK equities have done much better, with the energy-heavy FTSE 100 slipping a mere 3%.

“So this could be the moment to take profits at home and invest abroad.”

There’s nothing wrong with investing abroad, but in my opinion, UK investors who are worried about the pound’s weakness needn’t look overseas.

Here is a UK stock that could actually benefit from a weaker pound.

A chance to earn in foreign currencies?

Victrex (LSE:VCT) produces polymers that are sold in over 40 countries, although its manufacturing facilities are based in the UK.

Last year, revenue generated in the UK made up less than 1% of Victrex’s revenue, allowing the company to profit from the pound’s fall against other major currencies.

The company is a world leader in the production of polyether ether ketone (PEEK) polymers, which are incredibly hardy and capable of conducting electricity – making the lightweight thermoplastic a candidate to replace clunky metals in many industrial applications.

PEEK polymers are used in hundreds of engineering applications – for example, to make bearings, piston parts, pumps, HPLC columns, compressor plate valves and cable insulation.

But priced at 18 times expected earnings and with a moderate dividend yield of 3%, Victrex doesn’t really look like a screaming buy at first glance to me.

In addition, the company’s profits have been sliding over the last few years, with EBITDA down from £146m in 2018-19 to £110m in 2021-22 – and in May this year, the company reported that cost inflation had compressed operating profit margins.

Ready for the times to get better…

But Victrex could be on the cusp of turning things around, with the applications for its PEEK polymers still expanding. After all, the material was only invented around 40 years ago, leaving time for plenty more use cases to be discovered.

An ongoing clinical trial is testing out PEEK polymers in knee-replacement surgeries, for instance.

Meanwhile, PEEK polymers are likely to enjoy tailwinds from the green energy transition, with potential uses in electric vehicles and their charging infrastructure, as well as in wind turbine components and in the infrastructure for storing and transporting hydrogen.

For that reason, I think Victrex is far more likely to be going through a temporary malaise rather than a terminal death spiral.

So, with sunnier days possibly ahead for the company, as well as revenue sources coming from more than 40 international markets, I see Victrex as a good stock to hedge my portfolio against further weakness in the pound – as it earns in foreign currencies while reporting in pounds. 

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 considered so you should consider taking independent financial advice.

Mark Tovey has no position in Victrex. The Motley Fool UK has recommended Victrex. 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

Business development to success and FTSE 100 250 350 growth concept.
Investing Articles

Are we about to see a raging bull market for shares?

Investor sentiment looks like it's changing and we could be in the early stages of a bull market for shares…

Read more »

Black father holding daughter in a field of cows
Investing Articles

I’m investing just £5 a day in income stock to aim for £8,000 a year in passive revenue!

Income stocks form the core part of my portfolio, offering me passive income with minimal effort. But I'm reinvesting my…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

3 dividend hero stocks for a monthly passive income

This Fool discusses the investment trusts capable of paying him a lifetime of growing passive income to supplement his portfolio…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

PayPal shares are rising again. Is now the time to buy?

After a massive fall, PayPal shares are starting to recover. Edward Sheldon looks at what's going on and discusses whether…

Read more »

Cheerful young businesspeople with laptop working in office
Investing Articles

Is now the perfect time to start buying AIM stocks?

Might it be worth taking on extra risk and buying AIM stocks for the recovery? One of our writers, though…

Read more »

Young female analyst working at her desk in the office
Investing Articles

1 top British growth stock I’d buy now

This growth stock has tripled since October 2020. Roland Head explains why he still wants to buy this quality business.

Read more »

Investing Articles

Should I buy Aviva shares for the dividend in 2022 and 2023?

Aviva shares have soared in value. Yet at current prices the insurer's dividend yields still smash the market average. Should…

Read more »

Close-up of British bank notes
Investing Articles

Forget income bonds! I’d buy these 2 high-yield UK dividend shares

These two UK dividend shares offer significantly more attractive passive income than boring bonds, in my opinion.

Read more »