Macroeconomic issues have caused markets to tumble, and many shares are down. One FTSE 250 stock I like in the face of current issues is Grainger (LSE: GRI). Here’s why.
Rental properties
Grainger is the UK’s largest listed landlord. It designs, builds, owns, and operates approximately 10,000 residential homes across the UK.
So what’s happening with the Grainger share price currently? As I write, the shares are trading for 235p. At this time last year, the shares were trading for 293p, which is a 19% decline over a 12-month period.
Many FTSE 250 stocks have fallen due to soaring inflation and rising interest rates. With this in mind, Grainger shares have fallen to a level whereby I would consider them an opportunity.
The investment case
To start with, the housing market in the UK is complicated but could benefit Grainger, in my opinion. There is a severe housing shortage and at present demand is outstripping supply. Many people are turning to rental properties. Grainger could capitalise on this to boost earnings and returns.
Next, rising interest rates have made obtaining mortgages much tougher, especially as wage growth has slowed down. Again, many more people are turning towards rentals too. This could also benefit landlords like Grainger.
Moving onto some fundamentals, Grainger shares look good value for money right now on a price-to-earnings ratio of just 11. In addition to this, the shares would boost my passive income through dividends. The current dividend yield stands at 2.5%. This is slightly higher than the FTSE 250 average. However, I am aware that dividends are never guaranteed.
Finally, Grainger has a decent record of performance too. I can see it has grown revenue for the past three years and profit for the past two years. I do understand that past performance is not a guarantee of the future.
To Grainger’s bear case then. Due to the economic issues, a cost-of-living crisis has emerged. This means people are struggling to pay essential bills including mortgages, rent, and utility bills. Grainger could experience issues with rent collection. In turn, this could adversely impact earnings and returns.
Next, Grainger builds a lot of its own properties. The issue here is that the rising costs of construction could eat into profit margins, which underpin shareholder returns and growth aspirations.
A FTSE 250 stock I would buy
Overall I believe Grainger shares could be a shrewd stock to buy for my holdings at present. I would be willing to buy some shares when I have the spare cash to do so.
Grainger’s current valuation and passive income opportunity are enticing. Furthermore, the housing market at present offers Grainger the opportunity to grow the business and earnings. I can also see it has one eye on growth as it is aiming to have an additional 7,000 homes available to rent in the next five years.
