I think now’s a great time to go shopping for cheap FTSE 250 shares.
The UK-focused index has fallen 5% since the turn of the year. Even high-quality stocks have sold off heavily as fears over weak growth and persistent inflation have battered investor confidence. To me, this represents a brilliant buying opportunity.
Here are two beaten-down beauties on my radar right now. I think they could rebound strongly from current price levels.
Safestore Holdings
Property company Safestore Holdings (LSE:SAFE) has a bright future as demand for self-storage cubicles booms. Studies suggest this market will grow at a compound annual growth rate (CAGR) of 7.53% between now and 2027.
This real estate investment trust (REIT) — which owns assets across the UK and multiple European markets — is expanding rapidly to capitalise on this opportunity, too.
The company has opened 13 new properties since last November. And it has a huge pipeline of 1.5m square feet spread over 30 assets. This is equivalent to 18% of its existing portfolio.
Safestore’s share price has sunk 18% this year as interest rate hikes have pushed up its borrowing costs and depressed its asset values. Yet its excellent long-term potential and resilience during this tough period still make it an attractive buy. Like-for-like revenues rose 1.7% in the 12 months to October.
Today it trades on a forward price-to-earnings (P/E) ratio of 16.5 times. This is well below its historical average that ranges in the mid-to-high 20s. It also packs a healthy 4% dividend yield, providing more for value investors like me to get excited about.
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AJ Bell
Financial services provider AJ Bell (LSE:AJB) has endured an even-larger share price reversal in 2023. As I type, this FTSE 250 firm is down a whopping 23% in the year to date.
I think the company now looks like an exceptional dip buy. Its forward-looking P/E ratio of 16.2 times sits well below recent norms around the high 20s. And its corresponding dividend yield comes in at a very healthy 4.5%.
AJ Bell has slumped as worries over the UK economy — and how this could damage demand for its investment and retirement products — have persisted. This remains a threat going into 2024 as the cost-of-living crisis endures and unemployment rises.
But the company has remained pretty resilient so far in spite of these pressures. Net inflows dropped to a better-than-expected £4.2bn in the last financial year (to September 2023) from £5.8bn previously.
Meanwhile assets under administration rose 11% to a fresh record of £70.9bn, and customer numbers increased 12% to 476,532. This is all pretty reassuring.
Like Safestore, I think AJ Bell has tremendous long-term growth potential. Growing uncertainty over the State Pension means people are stepping up retirement-related investing.
And the number of elderly people in the UK is also booming (the number of over-65s is tipped to increase by 10% by 2033 and 32% by 2043). I think the long-term returns here could be huge.
