Are these the best FTSE 250 shares to watch in December 2023?
British Land, Persimmon and PureTech Health could constitute the three best FTSE 250 shares to watch next month. These shares have been selected for recent market news.
The FTSE 250 — unlike its older brother the FTSE 100 — is domestically focused. And the UK’s economic outlook remains as precarious as it has through much of 2023, with Office for National Statistics GDP data showing that the economy saw no growth in the three months to September.
The data body has also released information showing that wages in the same period rose at an annual rate of 7.7%, faster than price rises. For context, CPI inflation is currently at 6.7% — and a Reuters poll of analysts considers this key metric will fall to just 4.8% at the next reading tomorrow.
Meanwhile, though the unemployment rate remains unchanged at 4.2%, job vacancies between August and October fell by 58,000 to 957,000 — the sixteenth month in a row where vacancies have fallen. And the Bank of England has already warned that higher rates could drive unemployment to 5% in 2024, resulting in slower wage growth and 150,000 job losses.
For context, 2,315 companies fell into insolvency in England and Wales in October, 18% more than in October 2022, and also 18% more than in September 2023.
While there may be some movement on the fiscal side with the Autumn Statement this month, growth can be dependent on interest rates. Morgan Stanley analysts think that rate cuts could arrive as soon as May 2024, and the base rate could fall to 4.25% by the end of next year.
But as usual, Monetary Policy Committee members remain divided — chief economist Huw Pill has already argued that it ‘doesn’t seem totally unreasonable’ to expect a rate cut by next August — but Governor Andrew Bailey still thinks it’s ‘really too early’ to talk about the subject.
And this makes the macroeconomic landscape complex for FTSE 250 companies — on 2 November, the index was the best performing in the world. But of course, past performance is not an indicator of future returns.
Best FTSE 250 shares to watch?
1. British Land
British Land shares rose by 9.1% today after on the back of solid half-year results and positive broker comments. In the six months to 20 September 2023, the company saw underlying earnings rise by 3.4% — while the interim dividend also rose by almost 5%.
While British Land shares are still down by more than 40% over the past five years, this can be where value is found in the FTSE 250. CEO Simon Carter enthuses that underlying profits are increasing because of strong leasing and cost control — and occupancy is at an excellent 96%. The CEO also notes that as rates start to fall, the quality of British Land’s assets will ‘reassert themselves as the primary drivers of performance.’
In other words, this cyclical company may be at the bottom of its cycle. Stifel has hailed the results as ‘resilient…given the market backdrop’ and that ‘given the clear slowdown in valuation declines and increased clarity of future interest rates, we think the shares look oversold at a 44% discount to spot NTA.’ The 6.8% dividend yield could also look attractive.
Persimmon shares have lost more than 40% of their value over the past five years, with the housebuilder ejected from the FTSE 100 as its market capitalisation fell with rising rates. However, it increased its full-year build target to 9,500 homes this month — 500 more than its August prediction.
Of course, most of its quarterly earnings make for poor reading. Completions are down by more than a third in the three months to September 2023 at just 1,439 homes — and the order book has also fallen by a third to just £930 million. The FTSE 250 operator has also warned that market conditions ‘will remain highly uncertain’ going into 2024.
Further, market leading property portal Rightmove data shows that asking prices for homes in the UK have fallen by 1.7% — or more than £6,000 — this month to £362,143. This represents the steepest fall in five years for the time of the year.
But Persimmon shares hit just 960p on 25 October and have now recovered to 1,239p today. Arguably, much of the negative news could be priced in — and housebuilding stocks are well-known as cyclical opportunities. For context, US CPI data has come in under expectations, and the stock has reacted positively today.
3. PureTech Health
PureTech Health is definitely not a household name — unlike the shares above — but the smaller FTSE 250 company today announced that its LYT-300 (Oral Allopregnanolone) clinical trial candidate achieved its primary endpoint in a Phase 2a acute anxiety trial within healthy volunteers.
Specifically, it achieved a statistically significant reduction in the stress hormone response, as measured by salivary cortisol, compared to placebo. And this ‘proof-of-concept’ trial, which demonstrates a reduced physiological stress response, could support the further development of LYT-300 as a treatment for a range of anxiety disorders.
For perspective, anxiety affects nearly 30% of all US adults, but just like antidepressants, anti-anxiety medications have drawbacks including mixed efficacy, the potential for abuse, delayed onset of action and poor tolerability — and this treatment could overcome these negative side effects.
LYT-300 was well-tolerated across the trial, with only transient mild or moderate adverse events. Of course, the company has more than one asset — with 27 current candidates, one filed for FDA approval and two taken from inception to regulatory clearance.
But despite this success, all early stage clinical trials carry some risk.
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