One FTSE 250 stock that could be a shrewd buy during the current volatility is AJ Bell (LSE: AJB). Here’s why investors should consider adding some shares now before any potential market recovery.
Financial services business
AJ Bell is a financial services business with a well-known investment platform in the UK. It provides investment administration, dealing, and custody services. AJ Bell makes money from recurring fees, interest income, dealing fees, FX fees, and more.
So many FTSE 250 stocks have struggled due to macroeconomic and geopolitical issues. The former include soaring inflation and rising interest rates. Tragic events in Ukraine and now the Middle East have hampered markets too.
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As I write, AJ Bell shares are trading for 265p. At this time last year they were trading for 298p, which is an 11% drop over a 12-month period.
The investment case
A cost-of-living crisis has hampered AJ Bell shares, in my opinion. Many people are struggling with higher food prices as well as soaring energy costs. A by-product of this is that they have less money to spend on investment and retirement products. There is every chance that this turbulent economy could continue to wreak havoc with the business and other FTSE 250 stocks in the short to medium term.
AJ Bell provided a year-end trading update last week that I thought was largely positive. The big headline for me was that the number of users increased by a healthy 12% in its platform business, which translates to over 50,000 users. Net inflows dropped from £5.8bn to £4.2bn, which is not bad considering the current market volatility. The investment business saw net inflows and assets under management increase, which was pleasing.
Despite AJ’s share price drop, the shares do look a tad expensive on a price-to-earnings ratio of 18. The risk here is that continued negative sentiment could send the shares even lower. However, I’d make the argument that at present, the shares represent fair value for a business in good shape.
At present, AJ’s dividend yield of 3% looks well covered. Plus, when I see that the business has high margins and an excellent level of return on capital employed, I’m not worried dividends will be cut. However, it’s worth mentioning that dividends are never guaranteed.
Finally, when I think of the UK’s ageing population, AJ Bell is in a good position to benefit from those consumers keen to invest for their retirement and golden years.
A FTSE 250 stock I’d buy
I’d be happy to add some AJ Bell shares the next time I have some spare cash to invest and believe investors should consider doing the same.
AJ shares have faltered recently but the underlying business itself looks in good shape and offers what looks like a reliable passive income opportunity. It is one of a number of stocks that look primed to benefit once market sentiment and economic recovery occurs. However, I’d still expect a bit of turbulence in the short to medium term.
