In general, 2023 hasn’t been a terrific year for the FTSE 250. The level of the index has fallen by 2.2%, compared to a largely flat performance from the FTSE 100.
There have been some positives, though. Shares in J.D. Wetherspoon (LSE:JDW) have climbed 65% since the start of the year and I think the stock can continue its momentum into 2024.
A strong 2023
Honestly, I’m kicking myself for not buying this stock at the start of the year — I looked at it, decided it was good value, and then left it. Since nothing in my portfolio is up 65% this year, that’s been a mistake.
The firm’s success has been driven by a three main factors. One is the performance of the business, with strong sales growth and and inflationary pressures easing on the business.
Another is the improvements to the company’s balance sheet. Selling interest rate swaps earlier in the year allowed the company to take £169m off its £1.4bn debt pile.
A third is the investment the business has been making in its assets. Specifically, it has been either disposing of its leasehold pubs or converting them to freehold operations, which I think is extremely important.
An uncertain 2024
In general, I’m not bullish on the outlook for the pub industry in the near future (and a cyclical decline is a risk for J.D. Wetherspoon specifically). There are a couple of reasons for this.
The first is weak macroeconomic data earlier this week, reporting a 0.3% decline in GDP in October. The second is UK consumer credit card debt being at high levels.
I’m expecting both of these to be headwinds for discretionary spending next year. And I think the hospitality sector in general will see a cyclical downturn in business.
I don’t think Wetherspoon is entirely immune from that threat, but I do expect it to fare better than its peers. So I’m optimistic about the stock in 2024.
A standout business
What sets the firm apart from its competitors in the pub industry is its commitment to value for its customers. This has helped it remain resilient in 2023 and I think it will remain the case in 2024.
Importantly, the company has some important advantages that allow it to maintain lower prices than its rivals. One of those is that commitment to owning the freehold for its pubs the firm has been working on.
Not having to pay ground rents means the company has lower costs than its rivals. And it can pass those through to customers, making its offering more attractive.
A difficult year for the industry could actually be a huge benefit for Wetherspoon’s. If it can keep performing well as competitors struggle, this could strengthen the firm’s position against its rivals.
A stock to consider buying
If the UK economy fares worse than I’m expecting, there’s a chance next year might not be so good. That’s a risk that I think is worth taking, though.
Even at today’s prices, I think the stock looks like decent value. Having missed out on this year’s rally, it’s firmly on my list of stocks to buy for 2024.
