The FTSE 250 has underperformed the FTSE 100 so far this year. In fact, while the FTSE 100 has managed to deliver returns of 1.5% year-to-date (although it’s up 9% in 12 months), the FTSE 250 has fallen over 11% (and 7% in a year). This may be due to the larger number of growth stocks in the FTSE 250, which have suffered considerably from inflation so far this year. But for me, this has created an opportunity to buy some FTSE 250 stocks. These two are a couple of my current favourites I’d buy with £1,000.
A housebuilder with a high dividend yield
Despite the rising interest rates, and inflation, property prices continue to reach new peaks and demand remains strong. Due to the shortage of housing in the UK, there is also an emphasis on housebuilders building more houses. These factors meant that Vistry (LSE: VTY) was able to deliver an excellent set of results for the full-year. For example, it recorded profits after tax of £346m, up over 100% year-on-year. It also ended the half year with a net cash position of £234.5m, which was far ahead of expectations, and much higher than last year.
Most noticeably, after not paying a dividend last year, the company raised the total ordinary dividend to 60p per share. At the current Vistry share price, this equates to a yield of 6.7%, a lot higher than most other FTSE 250 stocks. With a two-times dividend cover, it is also well-covered by profits. This allows reinvestment in the company.
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The future also looks bright, with the company expecting even higher profits in 2022. Hopefully, this may even see more dividend increases.
However, there are a couple of factors that could disrupt this. Firstly, many believe that house prices may have reached their peak, especially as interest rates are rising. If house prices fall, Vistry profits are likely to drop. Secondly, post-Grenfell, the government is seeking to remove all unsafe cladding, and Vistry may have to contribute to these costs. This would hurt operating margins.
But the FTSE 250 stock trades on a price-to-earnings ratio of 7 and a price-to-book ratio of under 1. This makes me think that the shares are too cheap, so I may add more to my portfolio.
A FTSE 250 growth stock
Darktrace (LSE: DARK) went public in 2021. The cyber-security firm had an excellent start as a public company, with the share price more than doubling to reach 950p in October last year. But it is currently price at just 360p. This is partly due to the company’s previous sky-high valuation, alongside inflation worries and unprofitability.
Despite this, the firm is exceeding expectations. Indeed, in the third-quarter trading update, it added 359 net new customers, for year-on-year growth of 37%. Further, total revenue in the period was up 50% to $109.8m, meaning that the firm upgraded full-year expectations to revenue growth of between 45.5% and 47%. It may, therefore, be surprising that the Darktrace share price fell considerably on the back of these results.
But the reason for this share dump was news of an impending sale from staff, as the second post-IPO lock up on 85.5m employee-held shares ends on May 1, with around 20m shares expected to be sold. This may show a lack of confidence. However, the growth prospects of the company seem too strong to ignore, and this is a FTSE 250 stock I’d happily add to my portfolio.
