As the new tax year has begun, I’ve added fresh funds to my Stocks and Shares ISA. And although I don’t need to invest right away, I prefer not to delay so my shares can reap the full benefits of time and compounding.
I’m currently looking for the best FTSE 250 shares to buy. And I reckon I’ve found some great ones. This mid-cap index holds some excellent companies. They’re often small enough to provide ample growth potential but large enough to be relatively stable. I’d describe it as a sweet spot.
I’d buy IT
One FTSE 250 share that I reckon provides decent long-term prospects is IT provider Softcat (LSE:SCT). Its share price has fallen by 13% over the past year, despite solid business performance by the group. Allow me to explain further.
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In its half-year results, the company delivered strong profit growth and cash generation. Profit per customer rose by 12.4% as more of Softcat’s customers emerged from the impacts of the pandemic. The results beat management expectations and the board believes that results for the full year will be ahead of their previous estimates.
I’m impressed it performed so well despite component shortages and the supply chain constraints that plagued many companies.
Can it beat the competition?
Bear in mind that competition is intense in this industry. It’s highly fragmented with many small players. That said, Softcat has a history of gaining market share and differentiates itself with excellent customer service.
Overall, I’d say that the future looks rosy. More growth could come from ever-more businesses migrating to the cloud and the growing need for enhanced cybersecurity. That’s why I’d buy these shares for my new ISA allowance.
A FTSE 250 top pick
My next FTSE 250 top pick is Safestore Holdings. This self-storage company has been a remarkable performer over the past decade. Its shares have risen by 29% per year on average. That’s enough to turn a £1,000 investment into almost £12,500.
But can these mid-cap shares continue to perform? I believe they can. Safestore makes money by buying large buildings, splitting them up into sections and renting them out to those that need to store things.
It grows its earnings by expanding its property portfolio and letting out empty space in existing buildings. It’s a business model that serves it well and sales have steadily risen by 10% per year since 2015.
Points to consider
A few points to consider, however. Borrowing costs to finance new properties could increase if interest rates rise over the coming months and years.
If the UK economy tips into a recession, it could reduce the number of home-movers. That said, this group accounts for just 10%-15% of new business.
Overall though, I particularly like that it’s a profitable business with tremendous cash flow. I’m also currently looking for investments that could beat the effects of rising inflation and I reckon Safestore makes a good candidate.
In addition to renting out space, it should also benefit from rising property values over time. It ticks many boxes for me and I’d consider adding it to my ISA this month.
