Image source: Getty Images
I bought the stock for two FTSE 250 Companies in August. As a long term investor, I don’t trade very often, so it was a busy month.
In both cases, I bought more shares to add to my existing holdings. Today, I’d like to explain why I’m so excited about investing in these companies – albeit from an uncertain economic perspective.
Top family retailer
My first purchase was a retailer. Dunelm Group (LSE: DNLM) This FTSE 250 business is known for its range of affordable furniture. Dunelm is also expanding into the furniture market. The company recently opened a new warehouse to support this business.
Shopping surged during the pandemic, as stranded shoppers updated their homes. Dunelm’s share price also rose, reaching a record high of nearly 1,500p.
The stock fell more than 50% to around 700p. This leaves Dunelm trading at around 10 times forecast earnings in 2022/23, allowing for a 6% dividend yield.
City analysts have already predicted a fall in profits next year. However, the biggest risk is that the UK recession could be longer and deeper than expected. That could cause a huge drop in sales.
I cannot avoid this risk. But Dunelm has several characteristics that mean that this business will recover strongly and I think it will return to growth.
3 reasons why I bought it
Dunelm has strong finances with little debt. The group generates a lot of cash and has high profit margins – about 13% at last count. This means that any short-term decline in sales will be manageable.
Secondly, the Adderley founding family still own over 40% of Dunelm’s shares. My experience is that family-controlled businesses tend to run long enough to protect the family’s assets (and income). As a long-term investor, that’s what I want too.
Finally, I am impressed that Dunelm has hired Alison Brittain as its new chairman. Brittain has a strong track record as a CEO. FTSE 100 Firm White bread (Owner of Premier Inn).
On balance, I think the decline in Dunelm’s share price is giving investors an opportunity to profit from future growth. That’s why I bought more Dunelm shares in August.
A leading international business
Rising energy prices and supply chain problems have become daily complaints over the past two years. I have been buying stocks to increase my exposure to energy and shipping without directly investing in these sectors. Clarkson (Lacey: C.K.N.).
This FTSE 250 firm was founded over 170 years ago and is now the world’s leading shipbroker and cruise services business. Clarkson is active in sectors including oil and gas, renewables, dry bulk (eg grain) and container shipping.
Recent trading has been strong. Given the uncertainty and volatility in global energy markets, I think this is likely to continue.
One concern is that the global economic recession has reduced demand for ships. That profit can be hit.
However, Clarkson A “Structural Supply Shortages in the Global Shipping Industry”. It is expected to maintain shipping and handling costs. High commodity prices will also be good for shipping.
Clarkson shares are down about 25 percent from their pandemic highs. This FTSE 250 stock looks well-valued at current levels.