The stock market recovery is happening. And I’m finding loads of FTSE 250 mid-cap stocks that look poised to advance, powered by strong and growing underlying businesses.
As a recap, the FTSE 250 is a capitalisation-weighted index consisting of the 101st to the 350th largest companies listed on the London Stock Exchange. And it’s a rich hunting ground for long-term-focused stock-pickers like me.
Ahead of expectations
For example, public services provider Serco (LSE: SRP) released an operations update in May. The company said trading had been better than the directors expected. And a “positive outlook” led to an increase in full-year guidance.
Since then, the share price has been responding well. But at around 185p, the valuation looks reasonable. City analysts expect earnings to notch up by a mid-single-digit percentage in 2023. And set against that expectation, the forward-looking earnings multiple is around 14.
Serco has a record of lumpy earnings. But revenue and cash flow have been climbing over the past few years. However, things haven’t always been that way. Several years ago, the outsourcing specialist was making losses. And there’s some risk that trouble could hit the firm’s operations again.
But things look bright right now. And Serco looks like its operations are recovering well. I’m tempted by the stock.
A return to growth
I’m also keen on soft drinks maker Britvic (LSE: BVIC). July’s third-quarter trading update delivered the headline: “On track to deliver a full-year performance in line with expectations”. And City analysts expect earnings to increase by around 36% in the current trading year to September, and by almost 7% the year after that.
However, it’s possible for any company to miss its estimates. Nevertheless, with the share price near 857p, the forward-looking earnings multiple for 2023 is just below 14. And I reckon that’s a fair valuation.
Britvic suffered declining earnings over the past three years. But a recovery looks like it’s underway now. And because of that, I find the stock attractive. Meanwhile, as I wait for growth to gather momentum, there’s a handy dividend to keep me company. Britvic is yielding a shareholder income worth about 3.5%.
Fallen consumer stocks
Bombed-out consumer-facing stocks have been tempting me lately as well, such as Pets at Home (LSE: PETS). In May, the company said the pet care market “remains robust and in growth”. And a rise in customer spending had been “maintained across all categories and channels”.
City analysts predict single-digit increases in earnings for the current trading year to March 2023 and the year following. Meanwhile, with the share price near 320p, the forward-looking earnings multiple is just over 13 for the trading year to March 2024. I think the valuation looks fair. And there’s a handy dividend to collect, estimated to yield about 4%.
A year ago, the share price stood near 488p. And I reckon the company’s operational progress could send it there again. Although nothing’s certain and setbacks can affect any business. Nevertheless, I think Pets at Home operates in a robust sector. And I’m tempted to invest in the shares now for the long term.
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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended Britvic. 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.