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Forget Buy to Let! I’d buy these two cheap FTSE 250 stocks instead

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With property prices rising across the board and rental prices struggling to keep up, the profitability of buy-to-let investments has been questioned more than ever.

Buy-to-let investing has come under scrutiny from major political parties with one senior Labour figure today proposing a plan to afford renters the possibility of purchasing the property they live in at a reasonable price.

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While the probability of Labour coming into government can be debated, a general election in the coming months is becoming more and more likely and who knows what the result would be at this point.

It would be the latest blow to the sector, which has been hit by reforms introduced by the Bank of England’s Prudential Regulation Authority (PRA) and HMRC, driving tax rates higher for landlords with multiple properties.

While there has been some good news for buy-to-let recently with the latest figures showing steadily falling mortgage costs, I’d still look at some low-cost FTSE 250 stocks to boost my portfolio instead.

Two stocks which I’d add to my portfolio are baked goods provider Greggs (LSE:GRG) and cybersecurity firm Softcat (LSE:SCT).

Rolling in the dough

Greggs investors probably cannot believe their luck seeing how the stock has panned out over the last few years, with the share price rising more than 280% in half a decade.

The company’s success during that time has been based on consistent sales growth driven by significant and strategic expansion of the chain, as well as a broadening of the product base to include healthier and vegetarian options. 

This has allowed Greggs to not only enhance profits, but also its image, moving away from its previous reputation as the quick and greasy lunch option.

Some have argued it is now overpriced (the stock, not the steak bakes) but I see room for further growth as management is clearly well able to adapt the business to move with the times.

Greggs has already forecast materially higher sales than expected for the remainder of this year, and with more expansion plans on the horizon, I’d suggest it is well placed to continue that trend.

Cyber trends

From sausage rolls to cybersecurity, another FTSE 250 firm I’d add to my portfolio is high-growth company Softcat, which has rocketed around 160% in the last 24 months.

The IT infrastructure product and service provider has been posting impressive numbers in its recent quarterly results, with profits consistently rising for a number of years. Annual revenue breached £1bn for the first time last year, while its most recent report forecast that profits would be ahead of initial expectations for this year.

Operating profit for the first half of this year is up 40% in comparison to the year-ago period at £33.9m. Softcat also reported that gross profit per customer was up 19%, and all the signs appear to show that the company is growing and has plenty of room to go.

Cybersecurity is a sector that appears to have a lot of potential to expand, with Softcat establishing itself as a market leader in the area. While some may look upon a P/E ratio of over 35 as expensive, it has the results and growth potential to justify it, I reckon.

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conorcoyle has no position in any of the shares mentioned. The Motley Fool UK has recommended Softcat. 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.

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