One FTSE 250 stock investors should consider buying for long-term returns and growth

This Fool explains why this FTSE 250 stock could be ideal for growth and boosting passive income once market sentiment recovers.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Young Asian man drinking coffee at home and looking at his phone

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

One FTSE 250 stock that could be a shrewd buy during the current volatility is AJ Bell (LSE: AJB). Here’s why investors should consider adding some shares now before any potential market recovery.

Financial services business

AJ Bell is a financial services business with a well-known investment platform in the UK. It provides investment administration, dealing, and custody services. AJ Bell makes money from recurring fees, interest income, dealing fees, FX fees, and more.

So many FTSE 250 stocks have struggled due to macroeconomic and geopolitical issues. The former include soaring inflation and rising interest rates. Tragic events in Ukraine and now the Middle East have hampered markets too.

As I write, AJ Bell shares are trading for 265p. At this time last year they were trading for 298p, which is an 11% drop over a 12-month period.

The investment case

A cost-of-living crisis has hampered AJ Bell shares, in my opinion. Many people are struggling with higher food prices as well as soaring energy costs. A by-product of this is that they have less money to spend on investment and retirement products. There is every chance that this turbulent economy could continue to wreak havoc with the business and other FTSE 250 stocks in the short to medium term.

AJ Bell provided a year-end trading update last week that I thought was largely positive. The big headline for me was that the number of users increased by a healthy 12% in its platform business, which translates to over 50,000 users. Net inflows dropped from £5.8bn to £4.2bn, which is not bad considering the current market volatility. The investment business saw net inflows and assets under management increase, which was pleasing.

Despite AJ’s share price drop, the shares do look a tad expensive on a price-to-earnings ratio of 18. The risk here is that continued negative sentiment could send the shares even lower. However, I’d make the argument that at present, the shares represent fair value for a business in good shape.

At present, AJ’s dividend yield of 3% looks well covered. Plus, when I see that the business has high margins and an excellent level of return on capital employed, I’m not worried dividends will be cut. However, it’s worth mentioning that dividends are never guaranteed.

Finally, when I think of the UK’s ageing population, AJ Bell is in a good position to benefit from those consumers keen to invest for their retirement and golden years.

A FTSE 250 stock I’d buy

I’d be happy to add some AJ Bell shares the next time I have some spare cash to invest and believe investors should consider doing the same.

AJ shares have faltered recently but the underlying business itself looks in good shape and offers what looks like a reliable passive income opportunity. It is one of a number of stocks that look primed to benefit once market sentiment and economic recovery occurs. However, I’d still expect a bit of turbulence in the short to medium term.

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.

Sumayya Mansoor has no position in any of the shares mentioned. The Motley Fool UK has recommended Aj Bell Plc. 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

Investing Articles

Up 75% in 5 years, I reckon this FTSE 250 still has lots to give!

Our writer explains why this FTSE 250 stock could still continue to provide growth and returns despite already being on…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

2 high-quality FTSE 250 stocks to consider buying

The FTSE 250 is home to some of the best investment opportunities out there. This Fool highlights two stocks for…

Read more »

Investing Articles

The Marks and Spencer share price dips! Is this my chance to buy?

Marks and Spencer was one of the hottest stocks on the market last year. With its share price falling in…

Read more »

Growth Shares

How low could the boohoo share price go?

Jon Smith explains why the enterprise value and the low risk of bankruptcy should help to prevent the boohoo share…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Down 23% in a year! Can the Diageo share price regain £30 in 2024?

This Fool UK writer is checking the charts to see if the Diageo share price can recover from the recent…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

I wouldn’t touch this FTSE 100 stalwart with a bargepole

Despite looking like a bargain on paper, this Fool is avoiding FTSE 100 constituent Vodafone at all costs. Here he…

Read more »

Investing Articles

I’m waiting for the Rolls-Royce share price to pull back before I buy

The Rolls-Royce share price has been the Footsie's best performer in the last year. But this Fool has no intention…

Read more »

Front view photo of a woman using digital tablet in London
Dividend Shares

2 dividend stocks to take me from £0 to £9.5k in second income

Jon Smith talks through some ideas with second income potential, including one stock that has a dividend yield above 10%…

Read more »