Despite managing to rally in the final quarter, 2023 wasn’t exactly a vintage year for the FTSE 250 or many of its members. But I think a fair number stand a chance of recovering very strongly in 2024.
Here are a couple that catch my eye.
Ticking lower
During the pandemic, shares in watches and jewellery seller Watches of Switzerland (LSE: WOSG) just couldn’t stop climbing in value. Had I invested when Boris Johnson first sent us into lockdown in March 2020, I would have multiplied my cash many times over by the end of 2021.
Unfortunately, a lot of those gains have since been lost.
Not that this should come as a surprise. A fall in demand for luxury goods is always likely when interest rates march upward.
With analysts now predicting a cut in 2024, however, I’m more bullish on the company’s fortunes than I’ve been for a while. This development could push consumers to adopt a more relaxed attitude to discretionary spending.
Better times ahead
None of this is nailed on. And even if a cut does come, it could be later than anticipated. This means the shares could have further to fall.
Oh, and there’s no dividend stream to keep me patient if this were to happen.
But I wonder if a lot of this is already priced in. As I type, Watches trades at 12 times earnings. That’s significantly lower than the five-year average valuation of 17.
With full-year guidance maintained when it last reported to the market in December and several high-revenue showrooms set to reopen after being refurbished, I think now is as good a time as any to begin building a position if I can find the cash.
Under pressure
A second FTSE 250 member that I think could bounce back in style this year is Smithson Investment Trust (LSE: SSON).
At least, I hope this is the case. I’ve been a holder for a few years now. And while the shares also did extremely well during the ‘lockdown years’, recent performance has been far more tough going.
Again, the main reason for this isn’t hard to fathom. In troubling economic times, investors become more averse to the sort of stocks Smithson holds, namely those of small- and mid-cap businesses.
But this could be exactly the moment to increase my position if I’m able to do so.
Quality rules
As with its index peer, I reckon the probability of a good year at Smithson depends on how soon an interest rate cut comes and how big it is. Nothing can be guaranteed.
On the other hand, the stock market is forward-looking. Signs of multiple cuts in short succession could put a rocket under the sort of growth stocks this trust owns.
Again, there’s no passive income here. An annual management charge of 0.9% also applies.
But these are things I’m prepared to accept given that manager Simon Barnard only looks to invest in quality companies rather than any old market riff-raff.
This isn’t a complete bet on the UK economy either. Almost half of the portfolio is listed in the US.
Like its big brother — Terry Smith’s Fundsmith Equity fund — I think this year could see a return to its benchmark-beating form.
