2022 has been a year of disaster for many FTSE 250 stocks. London’s second-tier share index has fallen almost 20% in the year to date. This isn’t a surprise given its large weighting towards UK-focused companies here and the threat of a long recession.
On the lookout
But despite the gloom there are many FTSE 250 shares that could still deliver decent shareholder returns in 2023. Carehome operator Target Healthcare REIT and private hospital group Spire Healthcare are a couple I’ve bought in recent months.
What’s more, given the cheap valuations of many other UK shares here I aim to keep adding to my stocks portfolio. Here are several others I’m watching right now.
6 battered bargains?
A sharp downturn in the UK housing market has hammered FTSE 250 shares like Vistry Group and Springfield Properties. The worries over future homes demand has also smacked lots of other top stocks dependent on a robust housing market.
Brick manufacturer Ibstock (another London Stock Exchange share I own) has tanked. So has builders’ merchant Travis Perkins, landscaping products producer Marshalls, and estate agent Savills.
These shares now trade on price-to-earnings (P/E) ratios around, or below, the bargain benchmark of 10 times. Each also carries a dividend yield higher than the 3.1% FTSE 250 forward average. Vistry’s even sits in double-digit territory!
|FTSE 250 stock||Price-to-earnings (P/E) ratio for fiscal 2023||Dividend yield for fiscal 2023|
|Vistry Group||4.6 times||11.1%|
|Springfield Properties||5.1 times||8%|
|Travis Perkins||11.2 times||3.7%|
I don’t plan to dip buy any of these battered shares just yet. These businesses all face significant near-term problems that could ruin dividend forecasts and leave me with disappointing passive income.
Demand for homes could sink in the short-to-medium term if unemployment shoots higher and buyer confidence sinks.
At the same time, the Bank of England is tipped to keep hiking rates until well into 2023 to curb inflation. This could make house ownership unaffordable for a great many prospective first-time buyers.
Having said that, there are some signs of early encouragement for Vistry and those other FTSE 250 shares.
Mortgage rates have begun to fall in recent days, according to Moneyfacts. It said on Tuesday that the average five-year mortgage rate has slipped below 6% for the first time since Liz Truss’ mini-budget in September.
This reflects in part intense competition in the UK mortgage market that could keep pulling rates lower.
On top of this, HM Revenues and Customs data has shown house sales have remained steady in recent weeks. Transactions rose 2% month-on-month in October on a seasonally-adjusted basis, the taxman also announced on Wednesday.
Waiting to strike
There are other reasons to think the FTSE 250 shares could perform strongly in 2023. Stamp duty reductions will help support homes demand. So will the government’s Deposit Unlock incentive programme for first-time buyers.
For the time being I’m happy to sit on the sidelines. But I’ll be ready to strike if news concerning the housing market continues to quietly impress.
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Royston Wild has positions in Ibstock, Spire Healthcare and TARGET HEALTHCARE REIT LIMITED ORD NPV. The Motley Fool UK has recommended Ibstock. 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.