3 dirt cheap FTSE 250 stocks to buy for a 2023 ISA?

I wouldn’t buy FTSE 250 stocks as my first ISA selections. But I would after I’d bought some bigger stocks for a bit of safety first.

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Starting a new Stocks and Shares ISA today, I’d lay down five or more FTSE 100 stocks to aim for a bedrock of safety. But with that done, I’m also looking for FTSE 250 stocks for my new 2023 allowance.

There are so many out there that look super-cheap, it’s hard to choose. These three are on my radar, but they bring some risks.

Insurance

I’ve almost bought Direct Line Insurance Group (LSE: DLG) shares a few times. The price is down more than 50% over five years. So I wonder if 2023 might be the time to do it.

Insurance firms suffer bad times now and again. But this time has been brutal. We saw soaring claims, inflation, rising premiums, and a tough time for the whole sector. That led to profit warnings.

The firm stopped its final dividend for 2022. And the balance sheet didn’t look good. I even feared Direct Line was so short of cash it might have to move back in with its parents.

But isn’t that the best time to buy insurance shares, when they’re at rock bottom? I think it just might be, and I’m very tempted.

The main risk I see is that things could get a lot worse before they get better. But Direct Line is on my 2023 ISA candidate list.

Broadcasting

I think ITV (LSE: ITV) has been too cheap for some time. The share price has picked up a bit in the last six months, but it’s still down more than 40% over five years.

The City expects revenue and profit to fall this year. When cash is in short supply, companies can cut their advertising budgets without much pain.

ITV cut its 2022 dividend. But analysts still expect a 6% yield this year. And they also think it will be steady over the next couple of years too.

That’s risky though. And I see a real chance of a cut, as it looks like there could be more gloom ahead than had been feared.

But ITV’s on-demand and streaming products are taking off. And I think we could see the firm report solid cash generation in the years ahead.

Hedge fund

I like hedge fund manager Man Group (LSE: EMG) too. Its shares had been doing well in 2023, until they fell off a cliff in March.

The firm posted $983m in net financial assets at the end of 2022, up 8%. It raised its dividend by 12% and extended its share buyback programme by a further $125m.

Forecasts put the shares on a price-to-earnings (P/E) ratio of 12. And they suggest it should fall in the next two years as earnings grow.

We also see dividend yields above 6%, reaching 7.5% by 2025.

I think that’s a dirt-cheap valuation, and I can’t work out why. Has the market seen something that I haven’t?

Maybe it’s just a fear of volatility, which can hit a hedge fund manager should global markets take a turn for the worse.

Is this a risky trio? I think it might be. But I have them on my list.

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.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended ITV. 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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