The FTSE 250 tends to be more volatile than the FTSE 100. Does it mean that when markets are down, we can find better buys in the smaller index? I think it can often mean just that.
Here are three I’m adding to my list of shares to watch for next time I buy.
Dividends
There’s a couple of FTSE 250 housebuilders that I rate as very cheap now. Bellway and Redrow (LSE: RDW) both look good, but I think I like Redrow better.
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Both share prices have fallen, and both have been volatile. But Redrow just edges it on valuation.
Forecasts put the shares on a price-to-earnings (P/E) ratio of only around 5.5. There are hard times ahead, though, and we could see that rise to 10 if earnings fall as expected.
The City thinks the dividend will drop too, to yield about 4%.
That still looks good value to me. And if it’s near the bottom of a cyclical dip, it could mean a cheap stock to buy for the next decade.
There’s clearly risk if the property slump goes on too long. But interest rates have to come down sometime.
Investment trust
I like investment trusts a lot, and I have my eye on Alliance Trust (LSE: ATST) right now.
The share price has dipped a bit along with the latest stock market falls. But it’s held up pretty well over five years, so it looks quite defensive to me. It is, after all, one of the Association of Investment Companies’ Dividend Heroes.
The trust goes for global investments, targeting income and capital growth. The dividend yield isn’t huge, at 2.5%. But it’s risen every year for the past 56 years.
With a global outlook, Alliance Trust is exposed to worldwide economic risk. But its shares currently trade on a discount of 7%. So effectively, we can grab some of its assets for 7% less than their market value.
It’s not the biggest discount out there. But I’d still be happy to buy pound coins for 93p.
Fund management
I think Jupiter Fund Management (LSE: JUP) looks good. It mostly provides mutual funds, and the weak stock market has taken its toll.
Jupiter shares have lost more than 70% over the past five years, in line with falling earnings. But right now, I think the P/E valuation has dropped more than it deserves.
Forecasts put the P/E at around 12 for the next couple of years. And dividends look set to yield around 4.5%.
Again, similar to housebuilders, that’s during a cyclical dip for the firm’s sector. Do I think the investment business will pick up? I do, for sure.
And if Jupiter gets back to earnings growth, I think today’s valuation could look very cheap.
The danger is that the down part of the cycle could last a few more years. And even if the shares are cheap now, they might get even cheaper.
But I don’t try to time the market. Jupiter looks good value now, so it’s on my candidates list.
