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If pubs open in July, should investors buy cheap FTSE 250 stocks like JD Wetherspoon?

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Warmer days are well and truly here and Britons are hopeful pubs may open in the coming weeks. Trade body UKHospitality has set out a roadmap for getting pubs and restaurants open in early July. And it highlighted a “21% decline in hospitality trade in the first three months of 2020 as the industry moved into lockdown – 10 times worse than the whole economy.”

That decline has been reflected in the share price of many pubs. Today I’d like to discuss three FTSE 250 businesses that may deserve your attention as the lockdown is slowly eased. I believe investors who buy into them at the current depressed levels (or even lower) are likely to enjoy healthy returns in long-term portfolios.

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JD Wetherspoon

In a Covid-19 world, where pubs have been hit hard, JD Wetherspoon (LSE: JDW) shares have fallen close to 40% so far this year. In March, they hit a 52-week low of 492p.

When the group released a trading update in late March, it also cancelled the interim dividend and announced a delay to most capital projects to conserve cash. Its trailing P/E stands at 14.1.

1979 saw the first Wetherspoon pub open in London. As of early 2020, it operates close to 900 in the UK and Ireland. Its long experience, as well as strong balance sheet, will likely enable the group to weather any further headwinds that may be associated with the new normal in our lives. And the company has already shared details of how management plans to operate its pubs under social distancing guidelines.

Marston’s

Last week, the Marston’s (LSE:MARS) share price skyrocketed on news that it will merge the brewing business with Carlsberg UK. They will form Carlsberg Marston’s Brewing Company, in which Marston’s will own a 40% stake.

Chief executive Ralph Findlay said the deal will help the group “to further reduce its debt and focus on maximising value from its high-quality pub estate.” It is currently the UK’s largest brewing business, with six breweries and 11 distribution centres. It also has 1,400 pubs, restaurants, cocktail bars and inns. 

Prior to the the announcement, MARS stock traded at around 30p. On 22 May it closed at 66p. Yet it is still a long way off from its 52-week high of 133.8p.

Although there may be some profit-taking around the corner, in the long run this partnership will likely be good for the company and shareholders.

Mitchells & Butlers

In response to the adverse financial effects of the pandemic, Birmingham-based Mitchells & Butlers (LSE: MAB) has been working to keep afloat. It has secured a temporary waiver on its loan repayments. Meanwhile management has taken a wide range of steps to cut costs. 

Established in 1898, it’s also one of the largest operators of restaurants, pubs and bars in the UK. The brands include All Bar One, Nicholson’s, Harvester and Toby Carvery. Due to the pandemic, it has had to close all of its 1,700 of its establishments. As a result, its finances have come under considerable strain.

And shareholders have felt the pinch. In early January, the shares traded around 450p, not far off the 52-week high of 483p. In March, they hit a 52-week low of 92.3p. Now they are around 152p.

The trailing P/E ratio stands at 4.5. I believe most of the bad news may already be priced into the share price.

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tezcang has no position in any of the shares mentioned. The Motley Fool UK has recommended Marstons. 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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