After a 39% increase since the start of the year, NatWest shares have justifiably been getting a lot of attention. But there are a few FTSE 250 stocks that have been doing even better.
They aren’t attracting the same levels of attention, but this might be a mistake. I think investors should look carefully at the UK shares that have been showing impressive momentum.
The magnificent… six
Never mind the S&P 500 and its magnificent seven – here are the six FTSE 250 stocks that have outperformed NatWest shares since the start of the year:
| Stock | Return YTD |
|---|---|
| CMC Markets | 143% |
| Darktrace | 67% |
| Spirent Communications | 55% |
| Bakkavor Group | 49% |
| Hochschild Mining | 47% |
| 4imprint Group | 39% |
I’m not going to lie, my instinct when I first saw the CMC Markets (LSE:CMCX) share price was to suspect the company was being acquired. That seems to happen a lot with UK shares at the moment.
Actually, the company isn’t being bought out – as far as I can tell, anyway. The 143% share price gain is a reflection of how investors view the underlying business.
On the face of it, the stock seems to be on a roll. But a look at the company’s share price over the last five years reveals a different story.
Recovery mode
Investors who bought the stock at its 2021 highs and have held on since are still waiting for the share price to recover. The company’s cut its dividend, leaving shareholders without much to celebrate.
Why did the CMC Markets share price fall off a cliff in 2021? The main reason is that interest rates went up, causing investors to hold onto their cash instead of investing it.
CMC Markets share price vs UK interest rates 2019-24
Created at TradingView
As a result, revenues have fallen from £462m to £325m and earnings per share are down by 75%. But the firm has been making moves to arrest the decline.
This has involved lowering costs by cutting around 200 jobs. And with interest rates set to come down, plus the company raising its profit forecast, things are looking brighter.
Just the beginning?
As NatWest and Rolls-Royce have shown, recovering stocks can be great investments. And CMC Markets looks like it has the balance sheet to withstand a downturn.
The stock’s still down 50% from its 2021 highs. But if the company can get back to its previous earnings levels it will look extremely cheap at today’s prices.
A lower share count should help with this. And while restructuring costs are currently weighing on the company’s earnings, this should change.
Despite a stellar performance so far this year, the share price could have further to go. But there are some important risks to consider.
Competition
The biggest danger for CMS Markets is competition. The number of online trading platforms is increasing and the business relies on commissions to generate revenue.
In a competitive market, investors should be wary of these getting eroded – as they have been in the US. That’s a risk for the company.
