Stocks to buy: forget banking, airline and oil sectors, I prefer these FTSE 250 shares

Choosing which stocks to buy is not easy as the FTSE 100 (INDEXFTSE:UKX) and FTSE 250 (INDEXFTSE:MCX) wobble on geopolitical tensions and bad news.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Choosing which stocks to buy during this economic downturn is no simple task. Most company share prices are yet to recover from the March market crash that was caused by the coronavirus pandemic and subsequent lockdown. In fact, many of them will probably take years to return to pre-crash levels.

Airlines, cruise firms, oil companies and banks appear to be the worst-hit sectors, but many others have been affected too.

Pharmaceuticals and tech companies have fared better. This should not come as a surprise as many investors actively seek solutions to world problems and both pharma and tech offer answers to the challenges created by the pandemic.

Tech savvy stocks to buy

A UK tech company that has enjoyed a share price recovery past pre-lockdown levels is Computacenter (LSE:CCC). A FTSE 250 computer services company that serves both private and public sector businesses throughout Europe. The £2bn company has enjoyed excellent returns this year, surpassing analysts’ expectations.

Computacenter carries a roughly 7% free cash flow yield. It has a price-to-earnings ratio (P/E) of 22 and earnings per share are 90p. At the end of July, it had around £280m in net cash, so although it has paused its dividend, the likelihood the company will reinstate it is positive. It appears to have a well-managed setup throughout its distribution channels ensuring value for shareholders.

Lockdown created a surge of home workers and home schooling, boosting demand  for IT services, and I think this will continue. We are going to have to learn to live with the pandemic for the time being and so businesses will continue with an ongoing focus on ensuring staff are tech savvy. Many businesses are embracing home working for the long term, IT security is paramount, and I think Computacenter will continue to deliver value to shareholders. I think this is a good stock to buy.

Digitalisation and healthcare

Power products supplier XP Power (LSE:XPP) is another FTSE 250 stock that has seen its share price surge past pre-pandemic levels. Its share price has enjoyed a good week after reinstating its dividend payout, something income investors are actively seeking. The interim dividend payment will be 18p per share, which is nearly 50% lower than last year, but very welcome nonetheless.

XP Power has a market cap of £847m, its order intake for the first half of the year has improved by 45%, adjusted pre-tax profit rose 2% and revenue increased by 6%. It is well placed to benefit from both digitalisation and increased healthcare spending. This is because XP Power creates controllers for electrical equipment needed in manufacturing products like ventilators, patient monitors, and X-ray machines.

It also has a record backlog of customer orders to process. These mainly relate to orders from its semiconductor equipment manufacturing and healthcare customers. The company has already expanded its capacity in China and Vietnam to fulfil demand.

Although this looks a well-managed company and its share price has enjoyed a fantastic rise. I think it may be set to return to business as usual in the second half of the year. The fact that it offers a dividend is great, but growth may not be so rapid. It has a very high P/E of 40. So I think its share price could see some volatility. I think this would be a good stock to buy in a dip.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has recommended XP Power. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

After it crashed 25%, should I buy this former stock market darling in my Stocks and Shares ISA?

Harvey Jones has a big hole in his Stocks and Shares ISA that he is keen to fill. Should he…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

How’s the dividend forecast looking for Legal & General shares in 2025 and beyond?

As a shareholder, I like to keep track of the potential dividend returns I could make from my Legal &…

Read more »

artificial intelligence investing algorithms
Investing Articles

Could buying this stock with a $7bn market cap be like investing in Nvidia in 2010?

Where might the next Nvidia-type stock be lurking in today's market? Our writer takes a look at one candidate with…

Read more »

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »