FTSE 250 stocks have been caught up in recent stock market volatility, with the index falling 4% in the last month. While some may see this as a shame, I see it as a buying opportunity.
I always use my own intel before buying any stock, and would never rely on the artificial kind. But I’m also curious. So I asked ChatGPT to name two FTSE 250 stocks it felt had the ability to recover after struggling for some time.
Can Marshalls shares fight back?
Its first pick was UK-based landscaping and building products supplier Marshalls (LSE: MSHL). It’s certainly been struggling. The shares are down 18% over one year, and 60% over five.
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My first thought is that it’s been struggling a bit too much for my liking. Yet it’s undeniably cheap, with a price-to-earnings (P/E) ratio of just 7.57.
ChatGPT said Marshalls has posted “significant growth during previous economic upturns, reaching a market value of £1.5bn”. The cost-of-living crisis has inevitably hit it hard.
2024 revenues fell 7.7% to £671m, which “reflects lower demand from housebuilders and continued subdued activity in private housing repairs, maintenance and improvements”, according to Marshalls.
The board did cut net debt by 23% to £134m, and expects adjusted 2024 pre-tax profit for 2024 to be within markets expectations of £52m to £53.7m. The trailing yield has climbed to 3.38%.
Do I agree with AI? I’m afraid not. Inflation and interest rates to remain stubbornly high, which will hit housing market activity. Marshall has to absorb employer’s national insurance and minimum wage hikes from April. I think there’s a recovery play here, just not yet.
Breedon shares are bouncing
ChatGPT’s second pick was in the same sector, so I assumed it would be subject to the same challenges. But instead, its shares have been on a tear.
Building materials company Breedon Group (LSE: BREE) doesn’t fit the criteria I gave ChatGPT at all. Its shares are up 27% over the last year, and a staggering 545% over five. It’s a momentum stock, rather than a recovery play. ChatGPT responses remain as erratic as ever.
Breedon has “grown significantly over 17 years through strategic acquisitions”, my unreliable robot buddy tells me. It’s defied the domestic UK gloom by expanding into the US, acquiring BMC Enterprises for $300m and Lionmark Construction for $238m.
Today, it’s the US stock market that’s struggling, although Breedon has avoided the recent sell-off. Its share price is up 7% in the last month. Yet the P/E is a relatively modest 13.88.
Breedon was boosted by full-year 2024 results, published on 5 March, which showed underlying EBITDA up 11% to £270m. However, volumes fell 6% due to the weaker UK market (made worse by our dodgy weather).
Another concern is that net debt increased by £235m to £405m, mostly due to the BMC acquisition. Breedon is a banger, but I wouldn’t call it a recovery stock. Also, I feel like I’ve missed out on the excitement.
ChatGPT’s picks are a curious brace. They’re at very different stages of their growth cycles. Both are worth considering, but I wouldn’t buy any stock based on AI’s web trawling. I’ll do my own research, and see what human beings think too.
