Things haven’t been particularly pretty for the domestically-focused FTSE 250 in 2022, so far. Since January, the index has tumbled almost 30% in value as multiple economic issues have sent investors scrambling for the exits.
It’s grim, to be sure. However, I’m not selling a single thing. In fact, I’m looking to top up on some quality stocks that now look even better value and could bounce back strongly in 2023.
Almost 50% down!
Nearly halving in value year-to-date, shares in baked goods retailer Greggs (LSE: GRG) have fared far worse than the FTSE 250 index. That’s been sufficient to completely eradicate all my tasty paper profit and send me back underwater.
Could things get worse before they get better? Absolutely. The political shenanigans we saw last week look set to continue, leaving investors scratching their heads as to what to do next. And the one thing we can be absolutely sure about is that the stock market absolutely hates uncertainty.
But I’m looking for positives. Greggs has repeatedly shown itself to be a great business that’s survived many a period of market malaise. And while it certainly isn’t the only option for hungry shoppers and travellers, its value-focused offering is likely to appeal more than most in difficult times.
Trading well
Perhaps most importantly, the food-on-the-go retailer has been trading in line with expectations. Total sales were up almost 15% in Q3. The company also elected to keep its guidance on cost inflation steady at roughly 9%. So long as it can maintain this form, I’m increasingly confident that the Greggs share price could fly back over 3000p again in 2023.
In the meantime, there’s a secure 3.5% dividend yield for those holding the stock. As always, I fully intend to reinvest this back into the market, thus benefiting as much as I can from compound interest.
Quality going cheap
But Greggs isn’t the only FTSE 250 firm whose share price I think (hope) will bounce back to form in 2023.
Having made good money on the stock in the past, I’m also taking advantage of a huge dip in the company’s value to re-build a stake in fantasy figurine maker Games Workshop (LSE: GAW).
Again, this company’s stock has underperformed its index, dropping almost 40%. But, again, I’m looking at the fundamental business, not a constantly-moving valuation driven by near-term sentiment. And in my mind, there are few better UK firms.
While I do confess to not knowing an awful lot about its fantastical world, I do know that Games Workshop possesses a dominant presence in a niche market, a bulletproof balance sheet, and massive margins. All this makes a price-to-earnings (P/E) ratio of 16 — far below the five-year average of 23 — feel very reasonable indeed.
Don’t bottom-pick
Granted, there are still risks here. Even the most devoted followers of Warhammer 40,000 seem to be cutting back. Pre-tax profit in the most recent quarter fell to £39m (from £45m in 2021). Although expected by management, that’s not ideal.
But, paradoxically, it’s this temporary ‘pain’ that’s the Fool’s best friend. And when that recovery does arrive (and investors want to buy growth stocks again), I want to be on board rather than trying to pick the bottom and inevitably missing it.
