The Motley Fool

Covid-19-hit FTSE 250 stocks that I’m avoiding

Image source: Getty Images

The Covid-19 pandemic hit certain parts of the markets harder than others. Entertainment, cruise lines, hospitality, and airlines were all understandably devastated. Fortunately, many stocks in these sectors have bounced back. While there are undoubtedly some great investments available in the FTSE 250, there are some I’m not yet tempted by.

Pubs are still struggling

FTSE 250 stock Mitchells & Butlers (LSE:MAB) is a pub company operating in the UK and Germany. Its well-known brands include All Bar One, Harvester, Innkeeper’s Lodge, O’Neill’s, Toby Carvery, and several more. The company also operates some property leasing.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

It has a £1.9bn market cap compared with rival Whitbread’s £6.9bn market cap. It’s been burning cash at a rate of between £35m and £40m per month, and its debt costs it around £51m per quarter.

It’s widely expected that there will be a rush on pubs and social entertainment once the lockdowns are lifted. But it’s likely to take a long time before Mitchells & Butlers becomes profitable again. The Mitchells & Butlers share price has recovered 70% in a year and is up 30% in the past three months. While this shows confidence in the company, it makes me nervous and reluctant to invest. The Covid-19 situation is still bad in many parts of the world, and we’re not out of the woods yet. I think this stock could easily plummet again if the path out of lockdown is slower than anticipated.

Signs of growth in polymer demand

Polymer production company Victrex (LSE:VCT) has had an easier year than many companies, but Covid-19 still affected the business in the second half of 2020. Lower production led to higher costs, but 2021 is showing signs of growth. It’s cash strong with debt facilities available if need be.

Polymer demand depends on the market for plastics. This is not slowing down with considerable growth opportunity in emerging markets.

The Victrex share price is up 5.6% in a year and down 11% in the past three months. The FTSE 250 company reinstated its dividend in December after seeing a notable improvement in demand from the auto, electronic, and medical markets. Its dividend yield is 2.2%. It has a £1.8bn market cap and forward price-to-earnings ratio is 26.

However, profitability is likely to be slow and as it’s a globally facing stock, Covid-19 remains a threat to its success. I’m not confident enough to jump into this stock yet, but will keep it on my watch list.

FTSE 250 tech stock

UK tech company Micro Focus (LSE:MCRO) has done rather well since the pandemic hit. Its share price is up nearly 40% in a year and 15% in the last week. Its share price is close to its 52-week high and last week the company announced it’s partnered with US tech stock success story Snowflake to deliver data-centric protection to international clients.

It has a £1.5bn market cap, dividend yield is 2% and earnings per share are negative. I like a tech stock with a dividend, but I find the company’s very high debt levels concerning. And tech is a cut-throat industry with plenty of stocks to choose from. The sector has been on a tear through 2020 and is now falling out of favour with investors. Therefore, I’m not tempted to buy Micro Focus shares today, but will keep an eye on its progress.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Kirsteen has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Snowflake Inc. The Motley Fool UK has recommended Micro Focus and Victrex. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.