Best FTSE 250 shares to `buy´ in December 2022
Tritax Big Box REIT, The Renewables Infrastructure Group, Centamin, and Dr Martens could be some of the best FTSE 250 stocks to trade as recessionary fears take hold.
November’s best FTSE 250 shares to buy were relatively successful. Highlighted as Darktrace, easyJet, and Safestore Holdings, the companies have risen by 11%, 27%, and 10% respectively over the past month.
But as the UK heads into winter, the complicating factors concerning UK investment have only amplified. The Hunt-Sunak budget has calmed the markets — with the pound now up to $1.21 — but at the expense of tax rises and spending cuts which could well worsen an already difficult economic situation.
CPI inflation, already at 10.1%, is likely to increase further in April as the domestic energy price guarantee increases to £3,000 per household.
The Bank of England base rate now stands at 3%, and further rises to above 4% are baked into market expectations. Governor Andrew Bailey has upped his UK recession forecast to two years, and only expects growth to return by mid-2024. And this ‘very challenging outlook’ could well drive unemployment to 6.5% as the country suffers from the longest recession in a century.
However, there is still room for optimism for some of the best FTSE 250 shares. December is a case of searching for high-quality companies that may have overcorrected amid the fear-laden environment.
Share price falls in these companies have occurred for a variety of reasons: concerns that the UK recession may morph into global economic depression, an uncertain or unsavoury tax environment, the unpredictability of gold prices in the face of a wavering Federal Reserve, or even prosaic dampened consumer spending.
But most importantly, the best FTSE 250 stocks are often at their best value in times when economic stress and psychological fear are elevated.
Best FTSE 250 shares
1. Tritax Big Box REIT (LON: BBOX)
Tritax shares have fallen by 39% year-to-date, both over wider recessionary fears and specific concerns over falling real estate prices. However, its 13% rise to 132p over the past month could signal an overcorrection, despite the expectation that BBOX will post smaller profits throughout the recession.
The real estate investment trust has suffered from a pop in the ‘warehouse’ bubble, beginning earlier this year when major client Amazon warned it had overexpanded its warehousing needs and was looking to dispose of some space.
But Tritax’s share price is now far from its net asset value, and it has no asset vacancies. It also holds ESG points as one of the greenest REITs in the UK.
Further, the FTSE 250 stock has paid out reliable dividends for years by virtue of its REIT status, and this dividend income could rise over the longer term. This is because leasing demand is likely to rise, as e-commerce becomes ever more important compared to high street shopping, and companies choose certainty having experienced the dangers of the just-in-time model.
2. The Renewables Infrastructure Group (LON: TRIG)
TRIG shares crashed to a one-year low of 118p on 11 October but has now recovered to 131p, a shade below its estimated net asset value of 134.3p.
The FTSE 250 company invests predominantly in wind farms, solar power, and battery storage. 60% of its assets are operating within the UK, and the remaining 40% within Europe, giving it exposure to five different energy markets.
The obvious headwind is the new Energy Generator Levy, which has reduced TRIG’s per-share net asset value by 8.3p. The levy will be set at 45% of ‘extraordinary returns from low-carbon UK electricity generation,' in addition to 25% corporation tax, for an effective 70% rate.
While the EU revenue cap mechanism is deductible, there is no doubt that this levy is damaging TRIG’s attractiveness to investors. However, the long-term scope for profits means a small rise next month may be in the offing.
3. Centamin (LON: CEY)
Centamin shares fell to 74p on 15 July but have now surged by 19% to 106p year-to-date. With gold prices still at near record highs amid a slightly more dovish Federal Reserve, Centamin may be soaring to new heights in the near future.
The gold company’s key asset is its Sukari mine in Egypt. Excitingly, an independent study conducted by EnTech has found that operations at the country’s largest gold mine can be further expanded to 1.5 million tonnes per annum of total ore mined. This is at the upper end of the previously indicated range and represents a huge 31% increase in ore mining rates.
With a $154 million cash balance and healthy 6.1% dividend yield, Berenberg Bank has set a 123p target for the gold miner, representing a healthy potential upside.
4. Dr Martens (LON: DOCS)
Dr Martens shares have more than halved in value since the start of the year, falling by 27% today alone to 210p after releasing worse-than-expected interim results.
The iconic boot manufacturer has warned investors that the next few months will see weakened trading, including weaker demand over Christmas as consumers rein in spending over reduced discretionary income amid the soaring cost-of-living crisis. Increased internal investment and the strength of the US Dollar have also hit margins.
However, context is important, and the correction may now have gone too far. Revenue increased by 13%, despite profit before tax falling to $57.9 million. And the brand profile is exceptionally strong, likened in the footwear world to the economic moats enjoyed by Coca-Cola and Apple.
With the expectation of a poor quarter now baked in, the opportunity to scoop up shares ‘on sale’ may be hard for some to resist.
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* Based on revenue (published financial statements, October 2022)
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