As we reach the end of 2021, I am developing my investment strategy for next year. As well as reviewing existing positions, I am also on the lookout for new companies to add to my portfolio. I think there are plenty of opportunities in the FTSE 250 right now.
In particular, I am interested in companies that may be lagging behind the rest of the market in terms of their recovery. I think these stocks could have tremendous potential in 2022 as the world continues to rebuild after the pandemic.
As such, here are three FTSE 250 shares I would buy for my portfolio in 2022 and beyond.
Recovery shares to buy
Over the past two years, the travel and tourism sector has experienced one of the harshest environments on record. Unfortunately, it does not look as if the industry will be able to move on from the pandemic anytime soon.
However, I would like to build some exposure to the sector as a way to invest in the recovery. That is why I would acquire airline Wizz Air (LSE: WIZZ) for my portfolio.
Of all the companies in the travel and tourism sector, I think this business is best-positioned for the recovery. It entered the crisis with a strong balance sheet stuffed with cash. It also has a relatively low-cost base compared to peers. As other airlines rushed to cut costs and reduce cash outflow during the pandemic, Wizz has had a higher level of financial flexibility.
These qualities also suggest that the corporation can capitalise on the economic recovery over the next few years. Indeed, management is so optimistic about the outlook for the group the company recently placed a massive order for new planes to expand its fleet significantly. These new planes will help the business meet demand on the new routes it plans to launch.
Passenger demand has already recovered from pandemic lows. According to the group’s latest trading update, in November, Wizz carried 2,172,000 passengers at a load factor of 76.1%.
Despite the group’s progress, a couple of challenges could hold back its recovery. These include rising fuel costs and competition in its sector. Both of these headwinds could weigh on the company’s bounce back over the next couple of years.
FTSE 250 challenger
Virgin Money‘s (LSE: VMUK) business model is interesting. The bank is trying to take on the financial sector giants by offering something different. The group focuses on providing a high level of customer service and an engaging electronic offer to attract younger, digital-savvy consumers.
For example, the group is developing a digital wallet with buy-now-pay-later capability. By spending through the wallet, consumers will also have the potential to earn and utilise ‘Virgin Red’ points.
This is a consumer reward club operated by the Virgin Group allowing consumers to choose from 150 different experiences they can buy with their points.
The bank’s ability to leverage other parts of the Virgin empire to attract consumers is also unique. Rivals do not have the reputation or footprint to copy this approach.
Merger costs
When it comes to the challenger bank’s finances, the figures are a bit misleading at the moment. After Virgin Money and fellow challenger CYBG merged several years ago, the duo united under the Virgin banner in 2019. Since then, the group has continued to work through the integration process, although this was disrupted by the pandemic.
The combination of the additional costs from the merger as well as rising loan losses in the pandemic pushed the group into the red.
It looks as if these pressures are now starting to dissipate. This suggests the group’s best days are now ahead. This is the reason why I would buy the stock in 2022. Management plans to reduce costs significantly over the next two years and substantially increase profitability. These developments, coupled with potentially higher interest rates, could help the organisation produce substantial returns for shareholders.
That said, rising wages could offset some of the company’s cost-cutting initiatives. There is also no guarantee interest rates will increase from current lows, and there is always the threat of additional regulations and taxes, which are the bane of the banking industry.
FTSE 250 growth play
One of the easiest ways to build exposure to the global economic recovery, in my opinion, is to buy a FTSE 250 recruiter. Hays (LSE: HAS) fits the bill perfectly. And with a large global footprint, it is already riding the coattails of the global economic recovery.
According to its latest trading update, which covered the period to the end of September, 12 of the regions in which it operates produced record net fees, including the USA and China.
Overall, fees across the group increased 41% on a like-for-like basis. To meet the rising demand for its services, the company has been investing heavily to recruit and train new staff as well as opening new offices.
The number of staff employed by the company has increased 19%, but despite this growth, the average productivity per consultant remained at record levels in the quarter to the end of September.
Put simply, it looks as if the need for the group’s services is exploding. And it cannot recruit enough staff to meet this growing demand. That is a great position to be in, especially as the economic recovery is only really just getting started.
Despite this growth potential, I will be keeping an eye on the economic environment to see if it deteriorates. Recruiters are usually the first to feel the pain in a downturn. Therefore, if the recovery suddenly starts to splutter, Hays may suffer more than most.
