The FTSE 250 is having a rough start to the week. The UK mid-cap index was down nearly 4% in Monday (5 August) mid-day trade as US recession fears have investors panicked.
Despite the market jitters with many stocks falling, I’ve been watching one company in particular as its shares climbed more than 2% against an otherwise dismal morning in the markets, although they later pulled back a bit.
Why the stock market is under pressure
Many investors were selling this morning after a weaker than expected US payrolls report. Weak numbers have made US recession fears front of mind for investors.
Investors are worried that cracks are emerging in the economy that could impact on growth and raise fears of a downturn. While that might worry some, I see these times as a sort of boot sale for otherwise-good-quality stocks I can hold for the long run.
That means my morning was spent scouring for potential deals. One stock that stood out to me is Wizz Air (LSE:WIZZ), which climbed the aforementioned 2%+ in early trade.
Aviation stock on the rise
Wizz Air is a low-cost airline that has rapidly expanded its offering across Europe in recent years. It hasn’t all been smooth sailing, however, as the airline seeks to find the right balance between growth and profitability.
The share price has been under pressure of late. In fact, the company’s shares slumped 8% on Friday to close at 1,528p.
That came after the company reported a 98% decline in profits. The FTSE 250 company has its challenges, including having 46 of its 179 aircraft grounded due to engine issues plaguing manufacturer Pratt & Whitney.
On Thursday, Wizz said it expects groundings to peak in September next year when 47 planes will be out of action. The company also noted the compensation received won’t fully offset the cost of the groundings.
However, the market has known about the engine issues since a company announcement back in March. That makes me wonder if this is more a pullback from investors expecting worse trading going forward.
After last month’s share price drop, Wizz shares are trading at a price-to-sales (P/S) ratio of around 0.4. That’s broadly in line with industry peers, so perhaps this is a pullback on valuation more than a change in anything fundamental.
Long-term investors will no doubt be happy with today’s gains. This looks like a small recovery from last week however, rather than a strong turnaround in fortunes.
Clearly there are plenty of challenges facing the airline. I’m not confident that it has fixed its long-term operating model. That means I won’t be buying, despite the recent share price fall.
Where else am I looking today?
A long-term investment horizon can be a useful thing. It means I can look through the day-to-day market movements and think about what portfolio I really want to invest in for the future.
Given today’s gloomy market backdrop, I’ll be hunting among the more cyclical FTSE 250 names. I might just find a high-quality name that has been oversold by trigger-happy investors.
