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FTSE 250 correction: a once-in-a-decade chance to get rich?

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In 2022 my investment strategy was centred on FTSE 100 stocks. With the cost-of-living crisis on my mind, I was keen to invest in established businesses that could act as inflation hedges for my portfolio. However, in 2023 I’m turning to growth stock opportunities in the FTSE 250 index.

The Bank of England expects inflation will fall from the middle of this year. This could lead to looser monetary policy. A renewed desire for economic stimulus may well create bullish conditions for beaten-down stocks to return to strength.

FTSE 250 slump

The FTSE 100 index had an impressive 2022. Supported by solid overseas earnings and weakening sterling, London’s blue-chip benchmark outperformed other major stock market indices in the US, Japan, and Europe.

By contrast, the FTSE 250 fell from over 23,000 points to below 19,000 points at the end of December. This is perhaps unsurprising. Companies in the UK’s mid-cap index are often considered to be more sensitive to interest rate hikes due to their greater domestic focus.

In a tumultuous year topped off by the crisis surrounding Kwasi Kwarteng’s mini-budget, FTSE 250 stocks bore the brunt of the negative market reaction. I think there’s a good chance many are oversold.

Growth stocks

Growth stocks are companies that are expected to grow faster than the market average. They often have higher risk/reward profiles than value stocks.

FTSE 250 examples include bakery chain Greggs, low-cost airline easyJet, and gambling group 888 Holdings. After substantial haircuts, all three look cheap to me.

Accordingly, I’ve added the trio to my watchlist. I plan to buy shares in these companies with any spare cash as the year progresses.

The Greggs share price has fallen 17% over 12 months. However, the business looks resilient to me, evidenced by a 23% increase in sales over the past year to hit £1.5bn.

Admittedly, elevated energy and food prices could continue to be headwinds to further growth. Nonetheless, the company has so far managed to hike its product prices without dampening demand.

easyJet shares cratered 42% over the past year. Despite the fall, there are signs consumers are protecting holiday spending. The airline recently reported that demand for half term, Christmas and New Year getaways was strong.

Granted, higher fuel costs are an ongoing challenge for the business. Still, I believe there’s sufficient pent-up demand in the wake of the pandemic to ensure the company enjoys a successful 2023.

888 Holdings shares collapsed 67% on a 12-month basis. Peel Hunt analysts recently reiterated their ‘buy’ rating for the bookmaker, praising realistic guidance about risks it faces and future earnings.

The UK government is currently working on gambling regulation reforms. This could weigh on the share price. However, I think it’s unlikely any legislative changes would be too draconian. After all, the gambling industry contributes $8.7bn in revenue to UK plc.

A chance to get rich?

With discounted valuations across the FTSE 250, I believe I can find several potential bargains for my portfolio this year.

While not without risks, investing during stock market sell-offs can prove immensely profitable. I’m keeping my eyes peeled during what could be a once-in-a-decade chance to build serious wealth over the long term.

The post FTSE 250 correction: a once-in-a-decade chance to get rich? appeared first on The Motley Fool UK.

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Charlie Carman has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.