The FTSE 250 is 7% off below February’s record peaks, making now a good time to look for oversold shares. Like the FTSE 100, the UK stock market’s second major index is packed with brilliant bargains. Investors who buy today ‘on the dip’ could seriously boost their eventual returns.
There could be more volatility to come as the Middle East war drags on. The impact of soaring oil prices on inflation and global growth could be considerable. Yet buying quality shares cheaply today could prove a masterstroke over the longer term.
So which FTSE 250 shares are on my watchlist right now? There are several top contenders I’m considering, and here are a couple of my favourites.
A top REIT
Care home operator Target Healthcare REIT (LSE:THRL) has slumped as hopes of interest rate cuts have faded. Higher rates translate to larger borrowing costs and greater pressure on asset values.
But is the FTSE 250 property stock now too cheap? I think so — it trades on a forward price-to-earnings (P/E) ratio of 10.7 times, while its dividend yield‘s an enormous 6%.
While there’s near-term pressure, the long-term picture is compelling as ever. As Britain’s elderly population rapidly grows, demand for assisted living facilities is tipped to skyrocket. Research suggests demand for care home beds could double over the next 25-30 years.
On balance, I think Target Healthcare’s a top defensive stock to consider for these uncertain times. It operates in a highly defensive industry, for one, where rent collection and occupancy issues rarely spring up.
And for dividend investors, I think it’s especially attractive as a safe haven. At least 90% of annual profits from its rental operations must be distributed to shareholders, irrespective of broader conditions.
Down 18% in 3 weeks!
Lion Finance (LSE:BGEO) was trading at record highs above £12 before the Middle East conflict. It’s since fallen almost a fifth in value, which makes it one of the FTSE 250’s hottest bargains in my view.
The share formerly known as Bank of Georgia trades on a forward P/E ratio of 5.9 times. Its price-to-earnings growth (PEG) multiple, too, has slipped to a jaw-droppingly low 0.2. For reference, a PEG below one is often considered to be in bargain territory.
Finally, Lion’s dividend yield for this year is now 3.5%, just above the index average and providing an added sweetener for value lovers.
So why is the Georgian bank slipping? After all, surely the prospect of higher interest rates is encouraging for retail banks’ margins?
The trouble is that higher interest rates could slow economic growth. And when combining slower growth with more expensive debt, businesses and consumers tend to borrow less, resulting in slower growth for Lion Finance’s loan book. And if things get really dire, existing borrowers could also start defaulting, leading to impairments.
While this risk is high, over the long term, the outlook for Georgia’s economy remains bright. GDP growth has averaged 6% over the last decade, as economic reforms in this key regional hub have paid off. With banking product penetration in the country still low, I expect Lion Finance’s profits (and share price) to keep soaring during the next decade.
