Even though the FTSE 250 index has made smart gains since the stock market crash, some of its constituent stocks are still bargain buys. Two examples include the property developer Bellway (LSE: BWY) and the coach operator National Express (LSE: NEX). Both companies have suffered because of the lockdown-recession combination and continue to reel under its pressure. But for the patient investor, these can be good investments for a Stocks and Shares ISA.
FTSE 250 bargain buy
While large parts of the UK economy stayed firmly in lockdown mode in May, construction activity re-started. As a result, the construction sector GDP bounced back with a growth of 8.2%. Even though it hasn’t made up for the sharp fall in April of over 40%, the return to health has begun. This is good news for real estate construction companies like Bellway, whose share price is far from recovering fully from the stock market collapse.
In its trading update released in June, BWY confirmed that construction had restarted at its sites and that its order book is strong. It also pointed to its balance sheet strength and its eligibility for the government’s Covid-19 financing scheme for companies, which it hadn’t drawn on till then. But its share price hasn’t picked up very much since. In fact, its price-to-earnings (P/E) is a small 6.2 times, making it a FTSE 250 bargain buy.
Falling share price overlooks long-term value
National Express is another stock I like, whose share price has hit even harder times. Its share price has fallen drastically by 27% in July from last month. It’s now 62% below the pre-market crash highs. After gaining strength following its brief trading update in May, the share price started slumping when its CEO, Dean Finch, stepped down to join the FTSE 100 real estate developer, Persimmon. The share price hasn’t recovered since; in fact, it’s still falling.
I understand investor unease as the CEO exits, especially at a bad time for the company, but I reckon that NEX still has much going for it. As it pointed out in its May update, despite a fall in revenue the company was still profitable in April because of cost reductions. It had ample liquidity and with lockdowns being withdrawn in foreign markets, the blow to its operations may well have been tempered. Moreover, with the continued fall in share price, its P/E is a low 5.4 times, making it another FTSE 250 bargain buy for me.
The take away
It’s likely that both BWY and NEX will take some time to get their groove back. The economy has only just opened up and is still quite weak. But given their past credentials, it’s most likely that both these FTSE 250 stocks will not just survive the current recession but also start thriving again as the overall situation looks up.