Should You Ride The Buoyant UK Economy With Tesco PLC, MJ GLEESON PLC ORD 2P And A FTSE 250 Tracker?

Why Tesco PLC (LON:TSCO), MJ GLEESON PLC ORD 2P (LON:GLE) and a FTSE 250 tracker (INDEXFTSE: MCX) could outperform the FTSE 100.

| 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.

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.

Data from the Office for National Statistics (ONS) on Wednesday is set to show that UK growth since the recession has been stronger than previously thought, the Sunday Times reported at the weekend.

And with the ONS having also recently reported that real wages increased at the fastest pace in more than a decade in the three months to July, continuing recovery bodes well for companies with a high level of exposure to the UK economy.

As such, Tesco (LSE: TSCO), MJ Gleeson (LSE: GLE) and a FTSE 250 tracker could all deliver strong returns for investors.

Tesco

Tesco generated 70% of its revenue from the UK last year. In absolute terms, the £44bn that passed through its UK tills was more than that of Sainsbury’s (£24bn) and Morrisons (£17bn) combined.

Tesco’s UK focus is set to grow as it looks to strengthen its balance sheet by selling off international assets. The company has already agreed a sale of its South Korean business for £4bn, and has reportedly been in talks to dispose of its Polish, Hungarian, Czech and Slovakian operations, which could raise a further £3bn.

The cash raised from international asset sales should give Tesco boss “Drastic Dave” Lewis more freedom and firepower to be more radical in turning around the UK business. With Tesco’s shares trading close to their 52-week low of 165p — 34% off their 251p spring high — earnings declines expected to bottom out this year, and an improving UK economy, now looks to be a good time to buy.

MJ Gleeson

Small-cap housebuilder MJ Gleeson, which released its annual results this morning, has a market value of £250m at a share price of 467p.

If you think the big housebuilders did well last year, take at a look at Gleeson’s numbers: revenue was up 44%, normalised earnings per share soared 99%, and the Board hiked the dividend by 67%.

Gleeson has a two-pronged strategy of building low cost homes in the north, and buying land, adding value and selling it on in the south. As a smaller company, Gleeson has scope for greater growth than larger peers, which should help it to outperform with the tailwinds of rising real incomes and the extension of the government’s Help to Buy scheme to 2020.

On a trailing price-to-earnings ratio of 14, with excellent prospects, Gleeson looks an attractive investment.

FTSE 250 tracker

Tesco’s turnaround story and Gleeson’s small size may not suit risk-averse investors. Indeed, they should form part of a well-diversified portfolio. For one-stop diversification and exposure to the UK economic recovery, a FTSE 250 tracker is an excellent option.

The FTSE 250 consists of the UK’s next largest 250 companies after the FTSE 100. While the top index is packed with global giants, such as Shell, HSBC and GlaxoSmithKline, the FTSE 250 has considerably more exposure to the UK. Also, while the top five companies of the FTSE 100 make up 25% of the index, the FTSE 250 is markedly less top-heavy in its weightings. Familiar names at the top of the FTSE 250, such as Rightmove, Provident Financial and Auto Trader, each account for barely more than 1% of the FTSE 250.

There are plenty of FTSE 250 tracker funds around to choose from, including the popular stock-market exchange traded fund HSBC FTSE 250 Index.

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.

G A Chester has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »