A cheap FTSE 250 share I think could fly during the Santa Rally!

The FTSE 250 has historically delivered its best results during December. Value shares like this one could be in prime position to soar.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Snowing on Jubilee Gardens in London at dusk

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.

UK share prices are soaring, sparking speculation that a Santa Rally might be underway. The FTSE 100 is up 1% so far in December. The FTSE 250 meanwhile, has risen by around half a percentage point.

The FTSE 100 is the best-performing major index (bar the Hang Seng) in December, history shows us. But if the past is any guide, the FTSE 250 could significantly outperform its bigger brother this month.

Strong returns

Since its inception in the mid-80s, the Footsie has provided an average December return of 2.29%. That’s according to fresh research from broker eToro.

Should you invest £1,000 in Phoenix Group Holdings Plc 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 Phoenix Group Holdings Plc made the list?

See the 6 stocks

That’s a pretty decent return, in my view. However, it’s some distance below the average 2.71% return that FTSE 250 shares have provided in Decembers gone by. This 2.71% end-of-year return’s also better than the 2.19% average return typically delivered between January and November.

Room for a bull run?

Given the cheapness of FTSE 250 shares today, I think there’s plenty of scope for the index to rise strongly this particular December.

Today, the price-to-earnings (P/E) ratio on FTSE 250 shares stands at 14.2 times. This is well below the historical average of 22-23 times. And it suggests the index might be packed with brilliant bargains to buy.

I can try to capitalise on this by purchasing an index tracking fund such as the HSBC FTSE 250 ETF. This particular tracker’s delivered an average annual return of 8.5% since spring 2004. It could provide even better returns too, if the index plays catch-up following recent underperformance.

However, I could get better returns by purchasing individual shares. This is higher risk than spreading my capital across the entire index. But the potential for smashing profits may make this worthwhile.

A top FTSE 250 stock

With this in mind, I’m considering adding to my existing position in brickmaker Ibstock (LSE:IBST). I think it looks too cheap to miss, based on predicted earnings for 2025.

Created with Highcharts 11.4.3Ibstock Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

At 186p per share, the company trades on a forward P/E ratio of 16.9 times. To put this in context, its P/E has averaged 21.7 times during the last five years.

On top of this, Ibstock shares change hands on a price-to-earnings growth (PEG) multiple of just 0.4. Any reading below 1 implies that a stock is undervalued.

City brokers think the brickmaker’s earnings will soar 22% in 2025 as housebuilding activity gets back to normal. A stream of positive market data supports these forecasts, with latest Nationwide data showing average house prices rose at their quickest since November 2022 last month, at 3.7%.

Of course broker estimates don’t guarantee what will happen. Ibstock’s sales — which dropped 20% in the six months to June — could disappoint if interest rates remain around current highs, dampening demand for new-build homes.

However, I believe this possibility is reflected in the company’s low valuation. Given the housing market’s strong improvement, I think its shares have a chance of rising this December.

Should you invest £1,000 in Phoenix Group Holdings Plc 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 Phoenix Group Holdings Plc made the list?

See the 6 stocks

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.

Royston Wild has positions in Ibstock Plc. The Motley Fool UK has recommended Ibstock Plc. 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.

Our best passive income stock ideas

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

artificial intelligence investing algorithms
Investing Articles

Up 272% in just a year, is Palantir stock just getting started?

This writer recognises that Palantir has grown its business very well -- but does the stock price offer him an…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Up 50%? The Aston Martin share price forecast is mind-blowing! 

If analysts are right, the Aston Aston Martin share price could absolutely rocket in the year ahead. Harvey Jones says…

Read more »

Investing Articles

As the S&P 500 drops, here are 2 Stocks and Shares ISA holdings I’m watching

Our writer has different views on how President Trump's tariffs might affect these two US holdings in his Stocks and…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

£10,000 invested in Tesla stock at Christmas is now worth…

Tesla stock has been one of best-performing investments of the past decade. But things haven't gone to plan for investors…

Read more »

Investing Articles

Up 279% in 5 years, could Meta stock keep soaring?

Meta stock has more than tripled in five years. This writer sees lots to like about the business but also…

Read more »

Pink 3D image of the numbers '2025' growing in size
Investing Articles

25% total return in a year? Is now the perfect time to buy BP shares?

BP shares are on the front line of today's global economic and political uncertainty but analysts think they can still…

Read more »

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

With Cash ISA changes coming, could now be the time to consider buying shares?

Changes to the Cash ISA could lead to greater investment in the stock market. This could be a good thing…

Read more »

Investing Articles

These FTSE 100 dividend shares just got cheaper, thanks to President Trump!

Investors buying dividend shares can lock in bigger long-term yields when share prices take a tumble. These two just did…

Read more »