With inflation cooling and interest rates set to fall, I’m cautiously optimistic on how companies in the home-focused FTSE 250 index will fare in the rest of 2024.
Here are two I’ve got on my wishlist to consider buying when cash becomes available.
Confidence improving
Investment platform AJ Bell (LSE: AJB) should fare well as cost pressures ease. The more discretionary income people have left over, the more able they are to think about their long-term financial futures and put it to work in the market.
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Based on today’s (18 July) trading update, there are signs this is already happening. Customer numbers rose by 25,000 to 528,000 in the last quarter. Gross and net inflows were also “significantly higher” than over the same period in the previous year.
Too expensive?
The snag is that some investors have seen it coming. AJ Bell shares are now up 40% in 2024. That’s a huge outperformance compared to the 9%-or-so achieved by the FTSE 250 as a whole.
Prior to markets opening, the former changed hands for 21 times forecast earnings — worth bearing in mind if the UK economy hits another sticky patch. In such as situation, anything remotely pricey may be punished. While undoubtedly one of the bigger players, AJ Bell also operates in a crowded market where retaining clients is a constant battle.
Then again, the current valuation’s still far below the company’s average over the last five years (38 times earnings). And a higher-than-usual price tag for a stock like this makes sense considering the chunky margins it consistently makes.
Rising demand
For a bit of diversification, I’d consider adding fellow FTSE 250 member Big Yellow (LSE: ) to my portfolio.
In sharp contrast to the hassle involved in buy-to-let, owning a slice of this real estate investment trust (REIT) would give me fuss-free exposure to rental properties and regular passive income.
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Like AJ Bell, the self-storage specialist has also seen a uptick in business recently. Today’s update revealed a 4% rise in revenue in Q1 compared to the same three-month period in 2023.
The biggest driver of demand seems to be from domestic customers. I wonder if a decision by the Bank of England to cut rates (perhaps as soon as next month) could be the catalyst for a revival in the housing market and more business for firms like this as people look to temporarily store their clutter between moves.
But I also like that Big Yellow is positioning itself for growth. Having now received planning permission for nine new sites, the company is “embarking on an intense period of construction activity“.
If that’s not bullish, I don’t know what is!
Great dividends
An investment in Big Yellow seems to have many of the same risks as AJ Bell. Trading at a similar forward price-to-earnings (P/E) ratio, the shares aren’t cheap. I also need to be aware that this mid-cap is dependent on just one market — the UK.
For this reason, I’d make a point of checking that my portfolio also contained companies that made at least some of their money overseas.
But that 3.8% dividend yield is mightily tempting, especially as the company has a good history of hiking payouts in most years.
