The FTSE 250 is a UK-focused index. Many of the companies in the index earn most of their profits here in Britain, unlike the FTSE 100. As such, I have been looking for investments in this index to ride the UK economic recovery.
Here are two stocks that have caught my attention.
FTSE 250 stocks to buy
The first stock on my list is Restaurant Group (LSE: RTN). Like many hospitality businesses, this company has suffered a severe drop-off in trade over the past 16 months.
However, the enterprise is now on the road to recovery. As restrictions have been eased, consumers have returned to the group’s sites.
According to a trading update issued ahead of the company’s AGM in May, group sales at its Wagamama restaurants were 85% of comparable 2019 levels. Other sites were achieving between 60% and 85% of comparable 2019 sales. In addition, takeaway sales were tracking as high as 5.5 times above pre-Covid levels.
This suggests to me that the business has managed to maintain its customer base throughout the pandemic. This should provide a solid base for growth as the economy continues to reopen.
As such, I would buy this FTSE 250 stock for my recovery portfolio. Of course, if there is another lockdown, the company will start to struggle again. That is possibly the most significant risk hanging over the enterprise right now. It could also struggle to deal with rising costs and staff shortages, holding back the recovery.
At the end of April, the company announced that during the 16 weeks to the 17 April, overall revenues were up 13.4% compared to 2019 levels. This growth has enabled the business to resume its dividends and reward investors with a special distribution to cover the foregone payout for the 2019 financial year.
As the economy continues to open up and consumer confidence returns, economists expect consumer spending to increase. That could help push sales of discretionary spending items such as kitchens, in which Howdens specialises, higher.
While there’s no guarantee of this happening, I think there is a good chance the company could benefit from the overall economic recovery. That is why I would buy the FTSE 250 stock for my portfolio today.
One headwind the company may face is rising costs. Commodity costs have increased substantially over the past 12 months, causing havoc in the construction market.
Some companies have been able to move these higher costs on to consumers, but others have had to sacrifice profit margins to maintain pricing. Howden is likely to feel similar pressures, and the FTSE 250 firm may struggle to pass the costs on to consumers in their entirety.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Howden Joinery Group. 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.