If I had £3,000 to invest today, I’d buy FTSE 250 stocks. The reason’s simple. I think FTSE 250 stocks stand to benefit more from the UK economic recovery. Therefore, investors may see better returns.
With that in mind, here are some of the mid-cap stocks I’d buy for my portfolio.
FTSE 250 stocks
The first on my list is high street baker Greggs. The company has adapted well to the business environment over the past 16 months, and it’s now building on this progress to capitalise on the reopening.
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According to its latest trading update, like-for-like sales growth in company-managed shops were up between 1% and 3% against 2019 levels at the end of June. This growth was more robust than management expected and is likely to have a “materially positive impact” on the financial results for the year.
Two headwinds that could disrupt Greggs’ recovery are rising costs and another coronavirus wave. Either of these could hurt growth and profit margins.
In the same sector, I’d also by recovery play Greencore. This convenience food manufacturer has struggled to adapt to the new normal. But now the economy’s reopening, management is optimistic. In the 13 weeks to 25 June, group revenue increased 53.1% year-on-year and was just 2.8% below pre-Covid levels.
These numbers show just how far the business has come. And as the economy reopens, the company should be able to build on this progress.
Unfortunately, last year Greencore had to take on a lot of debt to keep the lights on through the crisis. This borrowing could weigh on the group’s recovery, so that’s something I will be keeping an eye on.
Construction market
Elsewhere, I’d also buy FTSE 250 construction group Balfour Beatty. As the government ramps up spending on infrastructure across the country, I think the construction industry should benefit. As one of the sector’s leading players, Balfour’s my top pick.
After a year of disruption, its latest trading update shows the group is back on a firm footing. Management has even started to return cash to investors with a share buyback. As the company’s growth continues, I’d buy the stock.
However, I should point out that construction can be an incredibly cyclical and low-margin industry. As such, Balfour may not be suitable for all investors.
Unique offering
The final FTSE 250 stock I’d invest in is the buy-to-let lender OSB. Property is a major market in the UK and, over the past year, investors and personal buyers have been clamouring for new properties.
It looks as if this trend will last, and there’ll always be a special place for niche lenders like OSB. The company can offer a product larger banks are unable to by providing a bespoke offering to clients.
Two risks the business may face are low interest rates and competition. These challenges could pull down profit margins and earnings if rates remain depressed.
