Some stocks look cheap to me due to macroeconomic pressures holding them back. One FTSE 250 stock I believe could be a great recovery play for my holdings is Biffa (LSE:BIFF). Here’s why.
Waste management
Biffa is one of the UK’s leading waste management companies. It specialises in several areas of waste management. These include collection, surplus redistribution, recycling, treatment, disposal, and energy generation of waste. It is supported by over 9,000 employees and covers 95% of UK postcodes.
As I write, Biffa shares are trading for 354p. At this time last year, the shares were trading for 230p, which is a 53% return over a 12-month period. Since its half-year results were posted in November, however, the shares have stagnated, despite good news. Under normal market conditions, I would have expected the shares to rise.
Macroeconomic pressures and risks
Many FTSE 250 stocks have suffered due to macroeconomic headwinds. These issues seem to be rising interest rates and inflation, which has led to a spike in costs. In addition to this, the supply chain crisis has hampered performance and progress for many firms. Finally, the HGV crisis and effects of pandemic on the UK’s workforce, have also hindered many companies, Biffa included.
Biffa’s progress has been halted mainly due to the HGV crisis, workforce issues, and rising costs, in my opinion. All of these are short/medium-term issues, in my eyes. Operations being affected and margins being squeezed can spook investors, often leading to share prices falling or stagnating.
A FTSE 250 recovery play
I like Biffa as a recovery play for my holdings. Firstly, it has a good track record of historic and recent performance. I do understand that past performance is not a guarantee of the future, however. Its most recent FY 22 interim report, released in November, was excellent. The report covered the 26 weeks ended 24 September 2021. It reported revenue increased by 39% compared to 2020 levels and 14% compared to 2019 levels. Full-year guidance was on track and the strong performance resulted in a 2.2p dividend per share being declared.
When Biffa reported these results, the share price dipped. It is down from 395p at the time of the report being released to current levels, which is a 10% drop. Performance was strong and a dividend is a bonus. Dividends help me make a passive income but can be cancelled at any time.
Biffa’s performance and dividends are attractive but its position in the marketplace is also a bonus. It is the leading provider of waste management solutions and is one of the most recognised brands in the space. It has historic roots stretching back over 100 years and has a large market share in the waste management industry here in the UK.
Overall I think Biffa is an excellent FTSE 250 recovery option for my portfolio. I do understand why the share price has dropped since the last results and I am aware of macroeconomic risks. My confidence in Biffa being a good addition to my holdings stems from its recent performance, the fact it is doing well enough to pay a dividend, and its position in its respective market. I would happily add the shares to my holdings.