A couple of weeks ago, I highlighted five stocks from the FTSE 100 I think are great long-term buys for those just getting started with investing. Today, I’m doing the exact same thing but with the market’s second division — the more UK-focused FTSE 250.
Once again, the emphasis will be on picking established, quality businesses with room to grow that also pay dividends.
While some might view kitchen supplier Howden Joinery as cyclical, I still think it warrants consideration from investors willing to look outside the FTSE 100. Howden sells kitchens to builders rather than homeowners, which means it should get repeat business, regardless of what’s going on with the economy. It also has a couple of things I’m attracted to when screening for stocks: a consistently high return on the money it invests in its business, and zero debt.
The shares have had a very good run of late and I’d prefer to buy at a cheaper price, but it’s hard to rule out a firm of this quality. The yield is 2%.
Like fund manager Terry Smith, I’m rather partial to companies selling small-ticket, branded items that are in demand during good times and bad. That’s why I particularly like stocks in the drinks industry.
The natural pick from the FTSE 250 for this sector would be Robinsons and J2O-owner Britvic. Recent results from the £2.6bn-cap weren’t exactly sparkling, due to problematic trading in France. But this should turn out to be blip rather than a crisis. The shares currently trade on a little less than 16 times expected earnings and yield 3.3%
Food on the go
If you regularly buy something at a station or airport, you’ll know just how valuable a captive market can be for a business. That’s why my third pick is SSP Group, which manages food and drink sites at busy travel locations. Its brands include Upper Crust and Ritazza, but it also manages Burger King and Starbucks outlets.
Perhaps, understandably due to the uncertainty surrounding how Brexit will impact the travel industry, it’s been a rollercoaster 2019 for the shares. However, the long-term trend is most definitely up. SPP’s shares trade on 21 times earnings and come with a 1.9% dividend yield.
A combination of new regulatory hurdles and a lack of volatility in the markets have made the last couple of years pretty uncomfortable for online trading specialist (and market leader) IG Group.
That said, recent performance has been far from disastrous and the forthcoming general election should be lucrative since traders will want to get involved in a potential ‘Corbyn crash’ or, perhaps more likely, ‘Boris bounce’. While not as cheap as they once were, its shares currently trade on a still-reasonable 17 earnings and yield a chunky 6.3%.
All long-term investors should have some exposure to market minnows, in my opinion. That’s why my final pick is actually not a single company but a near-30-year-old FTSE 250-listed investment trust with 79 holdings.
While ongoing costs will be higher than if you were to adopt a passive investment strategy, the fact the Aberforth Smaller Companies Trust share price has grown annually by almost 13% since inception should compensate for this. Moreover, the Trust pays a dividend (most small-cap funds don’t) which, when reinvested, should help compound gains even further.
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Paul Summers owns shares of IG Group Holdings. The Motley Fool UK owns shares of and has recommended Britvic. The Motley Fool UK owns shares of SSP Group. The Motley Fool UK has recommended Howden Joinery Group. 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.