Could these two FTSE 250 shares go up again in 2022?

FTSE 250 shares generally did quite well in 2021 as the stock market recovered from 2020 and these two shares that did well could keep performing.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

2021 was a year of recovery for the stock market following the shock and uncertainty of 2020, and these FTSE 250 shares did particularly well. Both car retailer Inchcape (LSE: INCH) and investment trust Caledonia Investments (LSE: CLDN) rose by 41%. Could another rise be on the cards this year? 

Riding a wave – for now

Second-hand retailers are riding a bit of a wave at the moment caused by the shortage of new cars. It’s unclear how long this will go on for. Further signs from Inchcape or its competitors that pricing remains strong, and the supply of new cars low, could see the shares perform similarly to last year. All the more so if there is a rotation out of growth shares because of inflation concerns. A value share like Inchcape could benefit from investors looking for profitable lowly-rated companies.

The investment case isn’t only about the market though. Management is also ambitious. The car retailer has a new strategy. The FTSE 250 company said the new strategy, dubbed ‘Accelerate’, features two growth pillars — ‘Distribution Excellence’ and ‘Vehicle Lifecycle Services’.

Looking at its medium-term financial outlook, in ‘Distribution Excellence’ it said it is expecting a compound annual growth rate for profits in the mid-to-high single-digits. In ‘Vehicle Lifecycle Services’, meanwhile, Inchcape said it is pencilling in at least £50m of incremental profit.

While that’s positive, car retailing is typically a low-margin industry. Inchcape is no exception. Operating margins are currently around 2%. That makes car retailing a volume-based game, so the company needs to sell a lot of cars to make a lot of profit.

Overall when it comes to car retailers I prefer Vertu Motors, which I suspect could be a takeover target. I’d be more likely to add it to my portfolio than Inchcape, as I don’t think the latter will do as well again this year. 

One of the top FTSE 250 shares? 

Meanwhile, as a Scot, perhaps I have an unconscious bias towards Caledonia Investments. But the analytical part of me thinks it’s an investment trust that could do well this year – even after last year’s strong performance.

The shares still trade at a discount to the net asset value of 17.5%. That doesn’t necessarily make them good value, but it does provide some margin of safety.

The trust is well established and has been going for 140 years. It invests in both public and private companies with top holdings on the publicly-listed side of things being Oracle, Microsoft and Texas Instruments. UK companies also feature including Polar Capital, Croda International and Unilever. Quoted companies account for 31% of the trust. Some 28% is in private companies and 30% is in funds, these are indirect investments through Asian and US-based private equity funds. The rest is cash.

The ongoing charge versus peers is quite reasonable at 0.98%. Similar trusts will often by charging double. 

The downside could be that the discount widens further and the share price falls. Caledonia’s multi-asset strategy could put investors off investing because it’s less clear what they’re getting. 

However, with access to private companies, I think Caledonia Investments adds a lot of diversification and so I’m really thinking about adding it to my portfolio. This is a share with a path to increase substantially again this year if the discount narrows and the net asset value, so the value of its investments rises. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Andy Ross owns shares in Polar Capital. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Croda International, Microsoft, Polar Capital Holdings, Unilever, and Vertu Motors. 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.

More on Investing Articles

US Stock

The Nvidia share price falls! Here’s what I think happens next for the S&P 500

Jon Smith reviews the overnight results from Nvidia and explains why this could stall the S&P 500 performance through to…

Read more »

Investing Articles

Down 15% today, is this FTSE 100 share too cheap for me to miss?

JD Sports' share price has tanked after the FTSE 100 share released another profit warning. Is this the opportunity I've…

Read more »

Investing Articles

Up 8% today, is this FTSE 100 growth stock a slam-dunk buy for me?

Halma's share price is soaring thanks to another headline-grabbing trading update. Is the FTSE 100 stock now too good for…

Read more »

Investing Articles

With a P/E ratio of just 10.5 is now a brilliant time to buy a cut-price FTSE 250 tracker?

Harvey Jones says a recent dip in the FTSE 250 leaves the index trading at bargain levels. One stock in…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

To build a passive income flow, I’d follow this Warren Buffett approach

Warren Buffett has set up passive income streams most people can only dream about. Our writer sees some practical lessons…

Read more »

Growth Shares

As the boohoo share price falls, could it become a penny stock in 2025?

Jon Smith outlines some of the recent problems involving the boohoo share price and considers if things could get even…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Here are the worst-performing FTSE 100 shares over the last 5 years

These five FTSE 100 shares have been complete duds over the last half decade. But is there potential for a…

Read more »

Investing Articles

Nvidia stock has tripled this year! Can it keep rising?

Nvidia's latest sales update showed strong growth and the stock's been on a tear so far in 2024. So is…

Read more »