The FTSE 100 and the FTSE 250 have taken big hits in the stock market crash. The indices have shed over 18% of their respective values at time of writing. Though it’s the FTSE 250 that has fallen furthest, dropping an extra 5% below its big brother.
Over recent weeks, both staged a bounce-back but share prices have fallen again, so I think there’s still a chance to grab some bargains.
The FTSE 250 is full of companies with bright prospects and high earnings potential. For that reason, growth investors gravitate towards this index in search of the blue-chip companies of tomorrow.
What’s more, as a result of the major sell-off, many are trading on dirt-cheap valuations relative to pre-crash prices.
Here’s my selection of cheap FTSE 250 stocks that I think offer the prospect of attractive returns over the long term.
A selection of FTSE 250 bargains
If I was pushed to pick my favourite stock in the index, I’d definitely go for HomeServe. The home emergency repairs company has performed exceptionally over the last five years and has held up well in the stock market crash. In fact, in early April, the firm reported better-than-expected full-year results despite the Covid-19 crisis. For me, a P/E ratio of 31 is justified by the company’s bright growth prospects and potential to increase earnings over the long term.
Shares in UK housebuilders tumbled in the wake of the market crash. The coronavirus caused construction to grind to a halt and sales of new homes to dry up. However, on Thursday the FTSE 250 housebuilder Bellway announced that it would begin a phased reopening of construction sites imminently. Add to this a P/E ratio of around 6.4 and I think it’s clear that shares are significantly undervalued.
Feeling bullish about the long-term recovery of the travel industry? Then shares in Wizz Air and TUI could offer the prospect of attractive returns to investors who are willing to take the plunge.
Finally, I’ve always been a fan of the popular bakery chain Greggs. Earlier last month, directors reassured investors that the company has enough liquidity to withstand a “prolonged” closure. That said, the share price still sits approximately 25% lower than mid-February, with a reduced P/E ratio of around 20. Provided lockdowns restrictions are soon lifted, I expect shares in Greggs to swiftly bounce back as business returns to pre-virus levels.
As I said in a previous article regarding cheap FTSE 100 stocks, if you think the entire index represents good value, why not buy an index tracker fund? That way, you’ll have the whole FTSE 250 covered in a single investment.
Hold for the long term
In my opinion, the current macroeconomic uncertainty only reinforces the idea that investments should be held for the long term.
Not only does this allow time for your returns to compound, but it also means you can ride through the peaks and troughs of the market and come out unscathed.
While share prices may continue to rise and fall on a weekly basis, having a long-term strategy means you can ignore the short-term fluctuations in the market and focus on what the next five-to-10 years and more may bring for quality companies.
With that in mind, I’d say don’t miss out on the opportunities this stock market crash brings to invest in cheap FTSE 250 companies with bright growth prospects
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Matthew Dumigan has no position in any of the shares mentioned. The Motley Fool UK has recommended Homeserve and Wizz Air Holdings. 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.