In my view, investing in a Stocks and Shares ISA is a great way of building wealth. The key though is figuring out which stocks to buy at what time.
This involves identifying which businesses have better prospects than the stock market recognises. And right now, there are two FTSE 250 stocks on my list.
JD Wetherspoon
I actually bought shares in JD Wetherspoon (LSE:JDW) last month. But with the price not having risen significantly, there’s a decent chance I’ll do the same again in February.
It’s no surprise (to me anyway) that the business reported significant sales growth last month, despite a slowing economy. The company has the lowest prices in the industry by some margin.
The biggest challenge at the moment is probably inflation. Lower prices mean tighter margins and while the company could theoretically raise prices to cover this, I don’t expect it to do so.
That means rising costs might cut into profits. But the Bank of England’s (BoE) decision to persist with higher interest rates in order to bring inflation in line with its 2% target is good news for investors.
In my view, inflation is a much bigger risk than a recession for Wetherspoon’s. I think the firm’s ability to be resilient in a downturn is much stronger than its ability to absorb higher costs.
As a result, I see the BoE’s announcement as positive for the company. If the central bank is prioritising inflation over economic growth, this looks like a good thing to me.
Primary Health Properties
Keeping interest rates fixed hasn’t been helpful for Primary Health Properties (LSE:PHP). As a real estate investment trust (REIT) it holds a significant amount of its assets in property.
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Higher interest rates might be bad for the company’s asset values. But I don’t think it’s a big problem for its cash flows – 89% comes from government organisations in the UK and Ireland.
Right now, the biggest risk with the stock looks like its balance sheet. Higher interest rates make refinancing the firm’s significant debt pile more expensive.
The average time to maturity is still around seven years though. So even if interest rates don’t come down as fast as expected, there’s still some time before this becomes a significant worry.
In the meantime, I think there’s an opportunity right now for investors to lock in a durable 7% yield for the long term. I own the stock in my portfolio and I expect to keep buying it.
Building a portfolio
I’m looking to build a diversified portfolio in my Stocks and Shares ISA. I plan to do this by taking advantage of different opportunities when they present themselves.
The best stocks to buy in February may or may not be the best stocks to buy in March. But, for now, I’m looking at JD Wetherspoon and Primary Health Properties as opportunities for my ISA.
