Recently I looked at two income stocks I’d buy for an ISA. In this article I’ll delve more into the mid-cap market to bring you two ideas from the FTSE 250 which I reckon could make good additions to any stocks and shares ISA.
Drink to that
JD Wetherspoon (LSE: JDW) is a competitor to Greene King, which I recently wrote about. Both pub groups face challenges, partly stemming from Brexit and from the wider competition for the limited money in consumers’ pockets. I’m positive for the prospects of JD Wetherspoon, though. Here’s why.
Firstly it has scale. The company has around 900 pubs in the UK and operates a portfolio of hotels. This provides power to Wetherspoons when it comes to dealing with suppliers, giving it an advantage over smaller competitors.
On top of that, the company has loyal customers. Affectionately referred to as “Spoons” by many, the company is well known, has pubs in good locations and many customers return time and time again. All this bodes well for ongoing profitability.
Customers like its prices, food offers and large pubs. I don’t see this changing and that is why I’m optimistic about the company’s future (regardless of what anyone thinks of the founder’s controversial opinions on Brexit).
Recent buying point
The share price has jumped back from a recent blip to continue the strong momentum that’s built up after a slump at the end of 2018. The blip was caused by an announcement that profits fell nearly 20% in the first half, though revenue was up. The fact that the shares have continued moving higher shows the popularity of the company and so this could well continue!
Softcat (LSE: SCT) is a very different company but has a lot to offer investors also. The company sells IT software and hardware and has greater growth potential – reflected in its higher PE, around 28. This means investors expect the company to grow quickly, and a failure to do so will likely see the share hit hard.
It’s fortunate, then, the company is in a good position, as evidenced by recent first half results which showed that pre-tax profit increased 40.7% to £33.9m on revenue of £434m, up 21% on the year. The interim dividend was lifted 36.4% to 4.5p a share.
This kind of growth is good for the share price! It helps the dividend jump up much more quickly than in more mature, lower-growth businesses which in turn excites shareholders and pushes up the share price. Softcat, for example, raised its dividend by just over 20% last year.
The share price
The share price of Softcat is also bouncing back this year after a slump at the end of 2018 – the price hasn’t caught up to where it was last summer, suggesting investors haven’t missed the boat. The good first half year results show the company is in a good position to keep on delivering the high growth that investors expect!
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Andrew Ross has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.