Beating the S&P 500? I’d buy this FTSE 250 stock for my Stocks and Shares ISA

Beating the S&P 500’s tricky, but Paul Summers is optimistic on this FTSE 250 stock’s ability to deliver based on recent trading and solid fundamentals.

| More on:
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.

With the exception of a skilled/lucky few, most US-focused investment managers struggle to beat the return of the S&P 500, especially after their fees are deducted. However, I think it’s perfectly possible for the nimble Fool. In fact, there’s one FTSE 250 stock I reckon could conceivably outperform the US index by the end of 2024.

Quality stock

Investment platform AJ Bell (LSE: AJB) doesn’t exactly get the pulse racing like some of the big tech stocks across the pond. Nvidia, this is not.

However, this is a quality company operating in a space that, while competitive, has a lot of room left to grow as an ageing population is pushed to get its finances in order.

A quick scan at the £1.2bn-cap’s fundamentals only serves to support this. High margins? Check. Stellar returns on capital? Check. A brand that inspires confidence? Check. A bulletproof balance sheet? Again, check.

Combine this with today’s (18 April) Q2 trading update and you might see why I’m increasingly bullish on the company’s capacity to outperform the S&P 500.

Perhaps the most striking bit of news in Thursday’s statement is that AJ Bell now has more than a half a million clients (503,000). The fact that’s well over double the number it had when it listed back in 2018 shows just how well it’s marketed itself. This is despite multiple headwinds impacting the desire/ability to save in recent years.

Another encouraging sign was the company reporting record assets under administration of a little over £80bn. This represented a 17% rise in the last year.

Personally, I think both numbers will continue rising, especially as AJ Bell is in the process of cutting custody fees and dealing costs. The launch of a new service to help clients consolidate their existing pensions should also prove popular.

Great price

By now, readers might be wondering why I don’t own this stock already. Well, a lot of this comes down to the valuation.

For a long time, AJ Bell stock was always priced relatively high (around 30-40 times forecast earnings). However, this is no longer the case. Prior to this morning, I could pick up the stock for 16 times earnings. That’s certainly a whole lot cheaper than some of the bigger players on the ‘frothy’ S&P 500.

But what seems like a good price now may prove to be an bargain if we get a big bull market as interest rates are cut and more people have money to save/invest.

With net inflows of £1.6bn in the last quater up 33% on the prior year, I get the impression that sentiment’s already turning.

Passive income stream

For balance, it’s important to highlight that rate cuts this year aren’t guaranteed. So the share price could hover for a while, or even dip lower if geopolitical tensions increase.

On the flip side, there’s likely to be a decent passive income stream for holders in the meantime.

Analysts currently have the firm returning 14.2p per share in FY24. That becomes a chunky dividend yield of 4.6% — far higher than I’d get from a FTSE 250 (or S&P 500) tracker.

Is that sufficient compensation for needing to be patient? I think so. If funds were available today, I’d be buying for my Stocks and Shares ISA.

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.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Aj Bell Plc and Nvidia. 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

Group of young friends toasting each other with beers in a pub
Investing Articles

Taylor Wimpey just paid me £158.78. I’m aiming to turn that into a £100k yearly second income

Harvey Jones says small, regular dividend payments can turn a few pounds into a mighty second income, if he gives…

Read more »

A pastel colored growing graph with rising rocket.
Value Shares

These FTSE 250 shares are tipped to rise 14% to 18% in the next year!

Looking for the best FTSE 250 momentum shares to buy? Here are two that City analysts expect to soar in…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

Lloyds’ share price is up 20% in 3 months! How high can it go?

Lloyds’ share price has ripped higher recently. Here, Edward Sheldon provides his view on the level it could potentially climb…

Read more »

Investing Articles

Why the Rolls-Royce share price could continue to outperform

The Rolls-Royce share price keeps moving forward, but this Fool thinks it's still behind where it ought to be after…

Read more »

Fireworks display in the shape of willow at Newcastle, Co. Down , Northern Ireland at Halloween.
Investing Articles

The City expects explosive growth in earnings from this almost-penny stock

It’s rare to find earnings predictions as robust as those for this not-quite-a-penny stock, so I’d research and consider it…

Read more »

Investing Articles

As earnings rise 600%, is Nvidia still the best AI stock to buy?

With the supply and demand equation still looking strong for Nvidia, is the stock still the best AI opportunity for…

Read more »

Value Shares

Cheap UK stocks are soaring! Here’s 1 to consider buying now

In recent weeks, many UK stocks have surged. Here, Edward Sheldon highlights a blue-chip FTSE 100 share he believes could…

Read more »

Investing Articles

Top alternatives to consider as the IAG share price climbs!

I've been bullish on IAG shares for some time, but as the IAG share price pushes upwards from its pandemic…

Read more »