London’s FTSE 250 index contains around 250 of the next largest companies after those in the lead FTSE 100 index. That’s broadly as measured by their market capitalisations.
Many FTSE 250 companies still have expanding businesses. So, a FTSE 250 tracker fund can be a decent way to get some growth potential into a diversified portfolio.
But I reckon there’s even more potential for growth if I select some of the best stocks from within the FTSE 250 and invest directly in those. But, of course, higher potential also comes with higher risk if I concentrate my money into just a few names.
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However, I’m prepared to embrace the risks in pursuit of higher returns. And in that spirit, I like the look of Beazley (LSE: BEZ) right now.
Pre-pandemic earnings recovered
The company is a global insurer with offices in Europe, Asia, and North America. In 2021, the business underwrote gross premiums worldwide of just over $4.6bn. And that achievement follows steady growth over more than three decades.
The areas covered by the firm include professional indemnity, cyber liability, property, marine, reinsurance, accident & life, political risks, and others. And in last week’s full-year results report for 2021, the company posted a “robust” pre-tax profit of just over $369m.
That outcome suggests a major recovery is underway in the business after the pre-tax loss of almost $50m in 2020. And chief executive Adrian Cox said first-party pandemic-related claims have “almost entirely been paid and fully accounted for“.
Cox said Beazley experienced growth across all its lines of business. And, looking ahead, he’s “particularly encouraged” by the opportunity in the cyber market where the company is seeing “significant” improvement in rates.
Robust growth estimates
City analysts have pencilled in double-digit percentage increases for earnings in 2022 and 2023. And the directors reinstated dividends by declaring an interim payment of 12.9p per share for the 2021 trading year. They also declared the company’s intention to operate a progressive dividend policy in the years ahead.
Overall, Beazley strikes me as a business that has recovered from the effects of the pandemic with robust growth opportunities ahead. Meanwhile, with the share price near 502p, the forward-looking earnings multiple for 2023 is just under 10. And the anticipated dividend yield is running around 2.5%, when set against analysts’ expectations.
For a growing business with strong immediate prospects, I find that valuation to be undemanding.
Cyclicality could be a challenge
However, one of the uncertainties involved in an investment in Beazley shares is the inherent cyclicality of the business. Over the long term, the company has so far grown — a lot. But we’ve seen how fast events such as the pandemic can damage the business in the short term. And there’s a significant amount of risk for shareholders in that situation.
It’s also worth me bearing in mind the company goes ex-dividend on 17 February regarding the declared interim payment. So we’ll likely see some share price weakness as the stock adjusts to account for the payment.
Nevertheless, Beazley tempts me. And I’d add the stock to my long-term diversified portfolio with the aim of capturing its potential for ongoing growth.
