These FTSE 250 stocks are top of the pile

The UK mid-cap index has been one of the world’s worst performing stock markets in 2022, but investors are spotting bargains after a slew of encouraging results.

A rare session of outperformance for the beleaguered FTSE 250 index was led by the likes of Currys (LSE:CURY) and easyJet (LSE:EZJ) today as investors also targeted a former mid-cap rising star.

The UK-focused benchmark, which is down by around 26% so far this year, found positive territory whereas the FTSE 100 index reached mid-afternoon more than 1% lower.

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The pressure on European markets came as Opec’s production cut renewed worries that inflation will stay higher for longer and prolong the need for aggressive interest rate rises by central banks.

Heavyweight Shell (LSE:SHEL) contributed to the FTSE 100’s poor performance after the energy giant’s guidance on third quarter refining margins sent shares sharply lower. Other commodity stocks under pressure included Glencore (LSE:GLEN) and Anglo American (LSE:AAL).

The fallers board also featured retailer Next (LSE:NXT) after Goldman Sachs cut its target price from 7,600p to 5,750p following the company’s results and downgrade to guidance.

Shares are now at 4,710p, which is a level last seen during Covid lockdowns in the summer of 2020. Peel Hunt, however, continues to regard the chain as “a must-own” stock as it highlighted a new price target of 6,500p.

The broker said today: “Within retail, there are few stocks that deliver so consistently.

“Next is not a “growth stock”, but consistently delivers mid-single digit revenue and profit growth, plus strong cash generation to fund additional shareholder returns.”

FTSE 250's top performers 

Source: SharePad as at 16:00 on 6 October 2022

Electricals retailer Currys is another high street bellwether whose shares are trading at levels not seen since the early days of the pandemic, driven by the deteriorating outlook for major purchases as mortgage costs and other bills rise.

The FTSE 250-listed shares today bounced 2.7p to 65.4p, aided by some evidence of household spending power after AIM-listed bathrooms specialist Victorian Plumbing reported a better-than-expected 5% rise in half-year revenues and improved margin trends.

Elsewhere in the FTSE 250, heavily-sold travel stocks TUI AG (LSE:TUI), easyJet and Wizz Air Holdings (LSE:WIZZ) were targeted by bargain-hunting investors and there were also big gains for the likes of cyber security stock Darktrace (LSE:DARK) and gambling group 888 Holdings (LSE:888).

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The biggest improvement in the second tier came from building ventilation products business Volution Group (LSE:FAN), which surged 23p to 329.5p after its full-year results revealed an encouraging start to the new financial period.

Increased awareness of air quality to health made Volution a favoured pandemic-era stock, but it has fallen by over a third this year along with the rest of the building materials sector.

Broker Liberum believes this is harsh as Volution has shown it can sustain margins and returns at high levels. It has an eight-year record of 13% earnings per share growth since its stock market listing., with today’s results extending that run after growth of 14% to 24p.

Liberum sees significant upside to its new 450p target price, while counterparts at Berenberg and Jefferies have estimates of 460p and 480p respectively.

In today’s results, Volution highlighted that the energy crisis had focused customers’ minds on the importance of heat recovery ventilation systems, which now account for over 30% of its revenues.

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Jefferies said: “We believe that the structural drivers of demand for Volution's products are only gathering pace - carbon emissions, energy costs and indoor air quality.”

The shares trade on 13.4 times 2023 earnings, which Berenberg said represented a 48% discount to European peers.