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I’d use my new ISA allowance to buy this FTSE 250 bargain

A new tax year provides fresh opportunities for ISA investors to make a packet. The recent share market sell-off leaves plenty of cut-price corkers for individuals to think about loading into their Stocks and Shares ISAs. There’s a number of FTSE 250 bargains that I myself have an eye on, one of which is B&M European Value Retail (LSE: BME).

This particular retailer operates at the low-cost end of the market. With consumer confidence shot as the coronavirus crisis rolls on, and the spectre of a painful and prolonged recession coming down the rails, this provides it with terrific earnings protection.

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Brand beauty

B&M has a couple more tricks up its sleeve to help it thrive in these troubled times. Its shelves are a veritable treasure trove of products that are essential for every household. From bread to soap, washing up liquid and pet food to painkillers, these are goods that we cannot do without, whatever the broader macroeconomic landscape is like.

Finally, B&M shares a characteristic that makes the likes of Unilever and Reckitt Benckiser such dependable growth stocks: brand power. Sure, it may not manufacture popular fast-moving consumer goods (FMCG) like Dove, Magnum, Dettol, or Clearasil. But its shelves are jam packed with the nation’s most-loved labels and this brings shoppers through its doors in their droves.

Store closures? No biggie

That’s not to say that B&M has been totally immune to the Covid-19 outbreak. It said at the top of the month that it had temporarily shuttered 49 stores because of “current trading conditions affecting those locations.” It said that a number of these were were smaller stores and that some were located in shopping malls that had essentially ceased trading for the moment.

It added that almost 90% of these closed outlets were located near to other, larger B&M stores.

In truth, these closures are likely to make little difference to the FTSE 250 stock’s top and bottom lines. Collectively they account for just 3% of group revenues and 2% of store-generated EBITDA. Besides, plenty of those lost revenues will likely be picked up by those bigger neighbouring outlets.

A FTSE 250 bargain

B&M’s share price has fallen 21% during the past two months. It’s not surprising perhaps, given the scale of panic that has enveloped markets in these unprecedented and frankly terrifying times.

But by comparison, the broader FTSE 250 has fallen by a little more (by 25%, in fact). Given that the index is jam-packed with cyclical, and thus more vulnerable, shares than B&M, this suggests to me that this defensive retail hero has been massively oversold.

The fact that B&M trades on a forward price-to-earnings (P/E) ratio of 13.9 times, way below its historical norms of closer to 20 times, is another reason why. City analysts reckon the firm will increase annual earnings by 10% in the fiscal year to March 2021. I see no reason for sales to stop ballooning in the near term or beyond.

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Royston Wild owns shares of Unilever. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK owns shares of B&M European Value. 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.