The FTSE 250 has experienced a strong recovery over recent weeks that’s helped it to recover a large portion of the ground it lost in the March market crash.
However, despite this robust recovery, the index still contains many companies that appear to offer wide margins of safety. While some of these businesses may continue to experience challenging operating conditions in the near term, they could deliver successful recoveries over the long run.
With this being the case, buying a basket of these undervalued FTSE 250 stocks today could be a sound move for long-term investors.
FTSE 250 stocks on offer
Although the FTSE 250 stocks have made substantial gains over the past few weeks, some stocks have been left behind.
Tech stocks have been leading the rally, while retailers and real estate investment trusts, for example, have struggled. Many of these companies continue to trade at a discount to their 2020 starting prices.
Weak consumer sentiment and an uncertain economic outlook will likely mean these companies will continue to face challenging operating conditions in the short term. But, in the long run, they could return to growth.
High-quality companies with strong balance sheets and wide profit margins may be in the best position to benefit from a recovery when it happens. Buying these companies when they trade at low prices could lead to high returns in the coming years as the FTSE 250 recovers.
Of course, there’s never any guarantee a stock will recover from a market slump. However, over the past few decades, the FTSE 250 has faced multiple challenges. From the dot-com bubble to the financial crisis, the index has experienced several severe crashes and recoveries in the past.
The market has recovered from every one of these setbacks. Sometimes it’s taken months for the market to recover. On other occasions, the FTSE 250 has languished for years. Nevertheless, it’s always recovered from significant setbacks. And it looks as if it will follow the same trend this time around.
Picking undervalued, high-quality businesses could be one way to play this recovery. Another strategy could be to buy the FTSE 250 as a whole. Buying a low-cost FTSE 250 index tracker fund is a relatively straightforward way to track the market without having to pick stocks.
This could allow you to profit from the market recovery without taking on too much risk. It will allow you to diversify across a wide range of sectors, reducing exposure to struggling companies. This may dramatically increase your chances of taking part in the likely FTSE 250 rally over the coming years.
Making a million
Buying an FTSE 250 tracker fund may also help you make a million in the market. Over the past three decades, the index has returned around 12% per annum for investors. At this rate of return, an investment of £300 per month would grow to be worth £1m within three decades.
That’s how buying the FTSE 250 today could boost your long-term financial prospects.
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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.