I bought shares in two FTSE 250 companies in August. As a long-term investor, I don’t trade very often, so it was a busy month for me.
In both cases, I bought more shares to add to existing holdings. Today, I want to explain why I’m excited enough about these companies to invest — despite the uncertain economic outlook.
A top family retailer
My first buy was retailer Dunelm Group (LSE: DNLM). This FTSE 250 business is well known for its wide range of affordable homewares. Dunelm is also expanding into the furniture market. The company recently opened a new warehouse to support this side of the business.
Trading boomed during the pandemic, as locked-down shoppers updated their homes. Dunelm’s share price also boomed, hitting record highs of almost 1,500p.
The stock has since fallen by more than 50%, to around 700p. That’s left Dunelm trading on around 10 times 2022/23 forecast earnings, with a potential 6% dividend yield.
City analysts have already factored in a fall in profits next year. However, the big risk is that a UK recession could be longer and deeper than expected. That could result in a much sharper fall in sales.
I can’t rule out this risk. But Dunelm has several qualities that mean I think this business will recover strongly and return to growth.
3 reasons why I’ve bought
Dunelm has strong finances with minimal debt. The group generates plenty of cash and has high profit margins — around 13% at last count. This should mean that any short-term slump in sales will be manageable.
Secondly, the founding Adderley family still own more than 40% of Dunelm shares. My experience is that family-controlled businesses tend to be run for the long term, to protect the family’s assets (and income). As a long-term investor, that’s what I want too.
Finally, I’m impressed that Dunelm has managed to recruit Alison Brittain to be its new chair. Brittain has a strong track record as CEO at FTSE 100 firm Whitbread (which owns Premier Inn).
On balance, I think Dunelm’s share price slump is offering investors a chance to profit from future growth. That’s why I bought more Dunelm shares in August.
A leading global business
Rising energy prices and supply chain problems have become everyday complaints over the last couple of years. To increase my exposure to energy and shipping without investing directly in these sectors, I’ve been buying shares in Clarkson (LSE: CKN).
This FTSE 250 firm was founded more than 170 years ago and is now the world’s leading shipbroker and shipping services business. Clarkson is active in sectors including oil and gas, renewables, dry bulk (e.g. grain) and container shipping.
Recent trading has been strong. I think this is likely to continue, given the uncertain and changing conditions in global energy markets.
One concern is that a major global recession could see shipping demand fall. That could hit profits.
However, Clarkson says that a “structural supply shortage in the global shipping fleet” is expected to keep shipping rates and ship prices high. High commodity prices also tend to be good for shipping.
Clarkson shares have fallen by around 25% from their pandemic highs. This FTSE 250 stock looks decent value to me at current levels.
