Over the past 10 years, the mid-cap stocks of the FTSE 250 have climbed ahead of the FTSE 100 giants a few times, but keep falling back.
Even a soaring early recovery following the 2020 stock market crash didn’t last long, and it was down again quickly.
But since October 2023, the smaller-cap stocks have started to pull ahead again. And I’m watching some I think look cheap, but I fear I could soon lose the chance to buy at such good prices.
Should you invest £1,000 in Diageo right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Diageo made the list?
Back to shares again
The high interest rates of today have led to money moving away from the stock market and into cash and other investments. Why take the risk of shares when you can get a guaranteed 5% from a Cash ISA?
In turn, that’s led to a tough time for investment firms like abrdn (LSE: ABDN), which saw earnings wiped out in 2023.
Interest rate cuts must surely happen soon. And when they do, that should boost the attraction of stocks once more.
We’re already seeing the abrdn share price ticking up again. It’s still down 70% over the decade though, and 45% over five years.
Big dividend
There’s an extra plus in the 8.7% forward dividend yield. Forecasts suggest it should be maintained over the next few years too, as earnings rise again.
The shares trade at 23 times forward earnings, which isn’t cheap. But it looks like that should drop to around 14 by 2026.
I also see a risk in the firm’s cost-cutting measures of the past couple of years. The lack of dividend cover by forecast earnings in the next few years is a bit scary too.
Less big dividend
The smaller Jupiter Fund Management might look a better bet, with a market-cap of just £434m compared to nearly £3bn for abrdn.
The dividend looks set to fall along with earnings from 2024, yielding around 5% on 2025 forecasts. But that’s still decent, and it should be twice covered by earnings. And the price-to-earnings (P/E) ratio is lower too, at around 10.
Both of these still depend on an as-yet-tenuous stock market recovery. And I do think cost of living pressures could delay that for longer than I’d hope. But with a 10-year outlook, they’re both on my list of potential FTSE 250 buys.
Turnarounds
I see a couple of other FTSE 250 turnaround candidates too, including housebuilder Bellway. It could still take a few years for the property market to get back to strength, and Bellway’s dividend might only be a couple of percent for a while.
But falling mortgage rates and the housing shortage make this another potential decade-plus buy for me.
I also see scope for a good few years from ITV as forecasts show earnings and dividends set to grow again. A 5.6% yield would be covered about 1.3 times this year, if the analysts are right, with cover improving.
These two are on my watchlist too. And I think anyone who expects a bull run for the FTSE 250 could do well to consider all four of these.
