The FTSE 250 is highly geared towards companies dependent on a strong British economy. So it’s no surprise that the index has tanked amid the government’s plans to push ahead with its controversial ‘mini budget.’

However, I think much of the selling has been driven by panic rather than investing logic. Some top quality UK shares have been heavily sold alongside more vulnerable companies.

This provides an opportunity for eagle-eyed investors to buy quality at knockdown prices. Here are two I’m considering buying for my own portfolio in October.

1. Pets at Home Group

Investing in the retail sector is risky as costs rise and consumer spending power falls. But Pets at Home (LSE: PETS) is a company I think could weather the worst of the crisis.

In recent years the petcare market has been more resilient than the broader retail sector. This is evident in Pets at Home’s latest financials, which showed like-for-like sales up 6% in the three months to June.

Demand for pet food, litter and accessories remains solid at all points of the economic cycle, then. And Pets at Home has another powerful weapon in its arsenal: it operates hundreds of in-store and standalone veterinary practices.  The essential service they provide gives the FTSE 250 firm another layer of resilience.

I also think the stock’s impressive market share gains make it a lifeboat in these difficult times. The country’s dominate petcare retailer has grown its total take of the market to 24%, up an impressive 6% in just five years.

Pets at Home’s share price has sunk 44% in 2022. I expect it to recover strongly over the long term as the animalcare market strongly grows. Analysts believe the industry will expand at an annualised rate of 5.2% to be worth $232.1bn by 2030.

2. Urban Logistics REIT

Property stock Urban Logistics REIT (LSE: SHED) has slumped 32% in value this year, meanwhile.

Real estate investment trusts (REITs) have been hit particularly hard since the ‘mini budget.’ Their high valuations have left them vulnerable to heavy share price falls. And more weakness could be possible in the near term.

But I’d use Urban Logistics’ recent share price reversal as an excuse to buy. Its growing portfolio currently comprises more than 100 warehouses and logistics centres across the UK. Its focus on these types of assets could deliver impressive long-term profits as e-commerce steadily expands.

Urban Logistics is already benefitting strongly from a large supply and demand imbalance in its chosen markets. It said in June that is is witnessing “continued upward momentum on rents” due to a shortage of available properties.

I also think the FTSE 250 firm is a safe-haven during this period of high inflation. Property firms like this can effectively pass on their rising operating costs by raising rents for their tenants.

One final thing: recent share price weakness has increased the REIT’s dividend yield to an impressive 6%.

Always needed

Companies that provide basic necessities like healthcare will always have demand, even during an economic downturn. Consequently, my first pick is GSK (LSE: GSK).

As a sign of how resilient it is, GSK recently beat analyst expectations for Q2, thanks to very healthy sales of its Shingrix shingles vaccines. Consequently, it also raised its targets for revenue and profit for 2022.

Any potential downsides? Well, having recently separated itself from its lucrative consumer healthcare business (now known as Haleon), GSK is a pure play on biotech. This means it needs to keep its pipeline of treatments moving along. That requires a lot of money. Many promising candidates won’t make the grade either.

Dividend payments will also be lower going forward. GSK is expected to pay out 45p in 2023. That’s a yield of 2.7%, as I type. Not bad, but not what it once was. On the flip side, a price-to-earnings (P/E) ratio of 13 feels like great value.

I doubt the share price will shoot the lights out over the next year but that’s not the point. The priority here is capital preservation and I’d be happy to buy today.

Pet power

The rise in pet ownership over the pandemic has been a boon to those providing products and services to owners. Therefore, my next pick is Pets at Home (LSE: PETS)

Isn’t buying any retailer in this environment risky? Quite possibly. Sadly, some people may be forced to give up their furry (or not so furry) companions due to the costs involved.

Even so, the gradual humanisation of pets over recent decades makes me confident that most people won’t even consider this an option. I also like how Pets at Home has its fingers in many pies. In addition to selling the food and toys customers need, it offers grooming and veterinary services. Like healthcare for humans, the latter isn’t a discretionary spend – it must happen.

Down almost 30% in 2022 and on a P/E of 16, the shares look fairly valued to me. A forecast dividend yield of 3.7% means I’m being paid to be patient too.

Again, I’d buy Pets at Home shares as things stand.

Safe storage

Recession or not, companies will still need sites to store their goods. So my final pick is Urban Logistics (LSE: SHED).

Urban invests in properties used for housing and distributing essential things — a market “where demand is high and supply is low“. Tenants include Boots, DHL, Sainsbury’s and the NHS.

One particular attraction here is the dividend stream. As a Real Estate Investment Trust (REIT), this £900m-cap business is required by law to return 90% of property income profits to shareholders each year. Urban currently has a dividend yield of 4.2%.

Naturally, these positives haven’t been ignored by the market. Shares in Urban Logistics already trade at a pretty steep 23 times earnings.

Considering the diversification it would bring to my portfolio (I don’t currently hold any REITs), I think the benefits outweigh the drawbacks.

Faltering recovery

The Greggs (LSE: GRG) share price put in a strong recovery in 2021. But it’s plunged again in 2022, and we’re now looking at a 12-month fall of 25%.

The high-street bakery chain is due to release first-half figures on 2 August. And if Greggs’ May trading update is anything to go by, investors will be hoping for something good.

The company saw 27.4% like-for-like sales growth in the first 19 weeks of the year. It also opened 49 new shops, while closing six. Although Greggs did tell us its full-year expectations were unchanged at the time, it was experiencing cost pressures.

That’s a key thing I’ll be looking for when we get the results. The second half could be all about resisting rising costs and trying to keep margins as healthy as possible.

Pandemic surge

Pets At Home (LSE: PETS) is one of the few stocks that soared when the pandemic hit. Anything at home enjoyed quite an advantage when we were all locked down. And the share price reflects the rise in demand.

The surge continued well into 2021, but it’s gone into sharp reverse in 2022. It always surprises me the way investors push a stock skywards when it benefits from a short-term problem, while knowing for sure that the problem will eventually end.

Still, what happens next will surely depend on how many new Pets At Home customers like the service and will stay with it. And we should get some idea of that when we see how the first quarter has gone, on 5 August.

Forecasts suggest several years of earnings growth. And if that comes off, I think Pets At Home shares could be good value now.

Battered sector

The construction business has been shunned by investors since the economic crunch set in. As a result, the Balfour Beatty (LSE:BBY) share price is down 10% over the past 12 months.

Forecasts put the shares on a forward price-to-earnings (P/E) ratio of around 11.5. But there’s a couple of years of earnings growth forecast, which would drop it to single digits if accurate.

The company itself seems to think its shares are worth buying. And it’s been hoovering them up as part of a share buyback programme.

At its AGM trading update in May, trading had been in line with the company’s expectations. And it had built an order book of £15.6bn. H1 results are due on 17 August.

Three to buy?

These three FTSE 250 stocks do face risks, especially if high inflation continues for too much longer. And I’d certainly not buy any of them in response to a single performance update. But on what I can see, all three have their attractions. We’ll have plenty to research in August.

The stock market recovery is happening. And I’m finding loads of FTSE 250 mid-cap stocks that look poised to advance, powered by strong and growing underlying businesses.

As a recap, the FTSE 250 is a capitalisation-weighted index consisting of the 101st to the 350th largest companies listed on the London Stock Exchange. And it’s a rich hunting ground for long-term-focused stock-pickers like me.

Ahead of expectations

For example, public services provider Serco (LSE: SRP) released an operations update in May. The company said trading had been better than the directors expected. And a “positive outlook” led to an increase in full-year guidance.

Since then, the share price has been responding well. But at around 185p, the valuation looks reasonable. City analysts expect earnings to notch up by a mid-single-digit percentage in 2023. And set against that expectation, the forward-looking earnings multiple is around 14.

Serco has a record of lumpy earnings. But revenue and cash flow have been climbing over the past few years. However, things haven’t always been that way. Several years ago, the outsourcing specialist was making losses. And there’s some risk that trouble could hit the firm’s operations again.

But things look bright right now. And Serco looks like its operations are recovering well. I’m tempted by the stock.

A return to growth

I’m also keen on soft drinks maker Britvic (LSE: BVIC). July’s third-quarter trading update delivered the headline: “On track to deliver a full-year performance in line with expectations”. And City analysts expect earnings to increase by around 36% in the current trading year to September, and by almost 7% the year after that.

However, it’s possible for any company to miss its estimates. Nevertheless, with the share price near 857p, the forward-looking earnings multiple for 2023 is just below 14. And I reckon that’s a fair valuation.

Britvic suffered declining earnings over the past three years. But a recovery looks like it’s underway now. And because of that, I find the stock attractive. Meanwhile, as I wait for growth to gather momentum, there’s a handy dividend to keep me company. Britvic is yielding a shareholder income worth about 3.5%.

Fallen consumer stocks

Bombed-out consumer-facing stocks have been tempting me lately as well, such as Pets at Home (LSE: PETS). In May, the company said the pet care market “remains robust and in growth”. And a rise in customer spending had been “maintained across all categories and channels”.

City analysts predict single-digit increases in earnings for the current trading year to March 2023 and the year following. Meanwhile, with the share price near 320p, the forward-looking earnings multiple is just over 13 for the trading year to March 2024. I think the valuation looks fair. And there’s a handy dividend to collect, estimated to yield about 4%.

A year ago, the share price stood near 488p. And I reckon the company’s operational progress could send it there again. Although nothing’s certain and setbacks can affect any business. Nevertheless, I think Pets at Home operates in a robust sector. And I’m tempted to invest in the shares now for the long term.

Pets at Home share price falls sharply in 2022

As a quick reminder, Pets at Home is a leading pet care business. It currently has over 450 locations in the UK as well as an online presence. Pet owners are able to buy everything they need to look after their beloved pets, including food, toys, bedding, as well as grooming and veterinary services.

So what’s happening with Pets shares currently? Well, as I write, they’re trading for 323p. At this time last year, the stock was trading for 488p, which is a 33% drop over a 12-month period. The share price has fallen sharply since the beginning of 2022, which is when macroeconomic headwinds and geopolitical issues affected stock markets worldwide.

Risks to note

The biggest risk Pets at Home faces currently is soaring inflation, the rising cost of materials, as well as global supply chain issues. The rising cost of materials has an impact on its costs, which could squeeze profit margins. This then has an impact on performance, returns, and investor sentiment. Supply chain issues could also lead to operational problems and impact sales too. I do view this is a shorter-term risk, however.

Despite Pets at Home’s well-established brand and dominant market position, increasing competition in the pet care sector is a threat to its investment viability. Other firms are trying to gain market share, which could impact longer-term performance and returns.

Positives and what I would do now

So to the positives. One major factor for me is Pets at Home’s dominant market position, as well as its presence throughout the UK. With many store locations, its online offering, and being one of the top pet care businesses, I believe this position should boost growth, performance, and returns too.

So what about performance? I do understand that past performance is not a guarantee of the future. However, looking back, I can see Pets has a great track record. In fact, in the past four fiscal years, it has grown revenue and profit year on year.

Next, the Pets at Home share price looks decent value for money right now on a price-to-earnings ratio of just 11. As a bonus, the shares would also boost my passive income stream through dividend payments. Its current dividend yield stands at 3.7%. It is worth noting that the FTSE 250 average is just under 2%. I am aware that dividends are never guaranteed and can be cancelled at the discretion of the business, however.

Overall, I believe Pets at Home shares could be a good addition to my holdings. For that reason I would buy the shares and hold on to them for the long term. The fact the pet ownership levels have increased in recent years is a positive for Pets at Home too. Currently, 59% of households in the UK own pets. This means they will need pet care and Pets at Home could benefit from this.

A recent survey from the Pet Food Manufacturers Association found that there are 40 million pets in the UK, and that 22% of households owned a dog, and another 18.% had a cat.

In total, there are thought to be 13 million dogs and 12 million cats in the UK, not to mention another three million small furry creatures that include rabbits, guinea pigs and hamsters.

Because we love our animals, we are happy to spend money on them

As a nation, we shell out £180m per month on them.

For young adults aged between 24 and 35 — the highest-spending demographic — that equates to an expenditure of around £125 a month on their pets.

What’s more, that spending is likely to be ‘price inelastic’, which means that pet owners won’t be looking to cut back despite rising prices and inflation.

For example, a 2020 survey by consultant Oliver Wyman found that 70% of pet owners planned to make no changes to their pet’s diet, regardless of the state of the economy or their finances.

How can I take advantage of these trends?

One way would be for me to buy shares in Pets At Home (LSE: PETS), the London-listed UK pet care business, which provides pet owners with everything from food to bedding, toys and veterinary services, from a one-stop shop, and via its subsidiaries Vets 4 Pets and The Groom Room.

In the financial year 2022, Pets at Home enjoyed record growth in sales and attracted 1.1 million new customers, taking its market share of the UK pet care space to 40%.

In fact, in the last five years 60% of the firm’s growth has come from increases in market share.

Group revenues grew to £ 1.32bn, up 15.3%, whilst like-for-like sales grew by 15.8% compared to 2021, and by almost 26% over two years. Pets at Home is also growing its online presence, and an omni- or multichannel approach to sales means that plenty of growth opportunities are still open to it.

Pets at Home grew its dividend by an impressive 47.5% to 11.8p per share, and it was able to increase customer revenue per staff member to almost £202,000 per annum, a jump of 10.2%.

Currently priced at 314p, the stock trades on an undemanding forward price-to-earnings ratio of 12 times 2023 earnings, with a prospective dividend yield of 4.30%.

With cash in the bank standing at £66m, it’s one of the few retailers in the current climate that can genuinely be said to be on a firm footing.

The shares have fallen by 32% year to date, a derating that wasn’t and isn’t justified by the fundamentals of the business.

These attributes are going to be in increasingly short supply and therefore very much in demand if the UK economy deteriorates further.

The risk in any investment in Pets at Home is that UK consumers could change their behaviour and attitudes toward spending on pets, in the face of a further substantial rise in the cost of living.

I will be watching Pets at Home closely looking for an appropriate entry level in the share price.

Animal magic

Retailer Pets at Home Group (LSE: PETS) could suffer some stress in the short-term as the cost of living jumps. But I think it’s a top long-term buy as the amount we spend on our furry friends steadily rises. Analysts at Research and Markets think the UK pet food market for example will grow by almost 3% each year through to 2026.

Pet ownership has recently soared as people sought companionship during Covid-19 lockdowns (a record 62% of British households owned a pet in 2021/2022). And numbers could keep growing as lifestyles change post-pandemic — for example the number of people working from home increases — and the introduction of standard tenancy agreements makes it easier for renters to own a pet.

A brilliant beast

I think Pets at Home is a great way to capitalise on this theme. Its stores and website are one-stop shops for everything your pet needs, from food and toys to veterinary care and grooming services.

Its broad range of services allow exceptional cross-selling opportunities when people are in store. This, in part, explains why like-for-like sales continue to grow strongly (up 8.7% in the three months to December).

I also like it because of its rapidly-growing ‘VIP’ loyalty scheme. This helps it fend off the competition and provide shoppers with a more personalised experience. The number of members here leapt 13% year-on-year between October and December, to 7m.

Pets at Home boasts a large 3.9% dividend yield for this financial year. The figure leaps to 4.3% for next year too.

Carry on doctors

I also think buying property stock Assura (LSE: AGR) shares is a great idea in the current climate. This is because demand for its assets remains stable during all points of the economic cycle.

This particular FTSE 250 stock builds and develops primary healthcare properties which it then lets out. Demand for medical services isn’t something which ebbs and flows, meaning Assura can expect rents to roll in during the good times and bad.

If anything, the need for GP surgeries and the like is set to grow as Britain’s population rapidly ages and the strain on existing infrastructure rises.

5%+ dividends

I also think buying property shares could be a good plan for me in this period of high inflation. The rents that companies like Assura charge tend to increase in line with broader prices, protecting me from the trouble that most other UK shares are currently facing.

Assura could suffer if government health policy changes. If NHS funding drops then profits at the business might take a big hit.

But all things considered, I think the rewards of owning this business outweigh the risks. Assura’s dividend yields for this financial year and next also sit at 4.8% and 5.1% respectively.

On a positive note, this gives long-term Foolish investors like me an opportunity to load up on quality growth shares while they’re on sale.

Fall overdone?

I think one example of the above is retailer Pets At Home (LSE: PETS). As I type, the company’s value has fallen over a third in 2022 alone. Is such a fall justified?

Well, there are headwinds for sure. Rising costs are hitting the vast majority of listed companies. Adding to the gloomy outlook, consumer confidence is now lower than it was during the 2008 financial crisis.

The departure of long-standing and highly-rated CEO Peter Pritchard is something else that may be specifically troubling Pets at Home investors. Some may also be concerned by the fact that his replacement, Lyssa McGowan, arrives from media and telecommunications giant Sky UK – a very different kind of business.

So why am I bullish on the stock? There are a few reasons.

Long-term growth

First, spending on pets is non-discretionary. More than ever, pets are considered full members of the family. The ongoing humanisation also pushes owners to spend more on their furry companions. I reckon this makes the FTSE 250 member a surprisingly defensive retail option.

Another thing I like about Pets at Home is that it’s rapidly evolved into a ‘one-stop shop’ for everything an owner might need. In addition to stocking all the usual products at its 455-strong estate, there are its veterinary (Pets4Vets) and grooming (Groom Room) services. It’s also got a VIP loyalty scheme and offers insurance. Importantly, Pets at Home has a very decent online business too.

The long-term growth trend of pet ownership should be considered as well. This was given a massive boost as a result of the pandemic. And while rising prices have brought home the full costs of owning a pet, we need to remember that the inflationary environment is temporary. Moreover, working from home is likely here to stay, making the mid-morning dog walk far more doable.

Reasonably priced

Then there’s the valuation. At 13 times forecast FY23 earnings, stock in Pets isn’t screamingly expensive. In fact, the five-year average P/E is 15.

It’s also worth mentioning the forecast yield of 3.9%. By comparison, the FTSE 250 index as a whole brings in 2.4% right now. No, these cash returns are never guaranteed. However, Pet’s payout is likely to be twice covered by profit. This makes its dividend stream look pretty robust.

FTSE 250 growth stock to buy

All things considered, I remain a fan of Pets for Home and consider the pretty awful recent performance of the shares an opportunity to start building a position. This is not to say I expect a recovery to be immediate. General market sentiment could easily get worse before it gets better.

More optimistically, I have no concerns over the full-year results, due 25 May. The company already suggested that annual profit would be at the top end of market expectations last November. Even if the numbers have been revised since then, I doubt we’re looking at a serious reversal of fortunes.

Well, no one knows for sure where share prices will go in the near term. As such, I prefer to stick to my strategy of owning great stocks for years rather than weeks. With this in mind, here are two members of the index I’d be happy to buy, whatever happens next. 

Long term theme

Petcare retailer Pets At Home (LSE: PETS) is an example of a great FTSE 250 business that I could see myself holding for the long term. That’s despite its share price falling around 7% in 2022 so far.

A beneficiary of multiple UK lockdowns and the pet boom that accompanied them, the mid-cap continues to release encouraging updates. Group like-for-like revenue increased 8.7% in the 12 weeks to 30 December compared to the same period in 2020. Perhaps more significantly, it was also 28.1% higher than two years ago.  

This isn’t all that surprising. Pets At Home now seems to have every corner covered. In addition to its 455-store retail estate, the company is rapidly growing its online presence (evidenced by the 99% jump in omnichannel revenue on a two-year basis). It also has a burgeoning veterinary services arm, gaining 9,200 new registrations per week on average.

At 20 times forecast earnings, the shares aren’t exactly cheap. However, I can’t see the themes of “long-term pet ownership, humanisation and premiumisation” highlighted by the company disappearing any time soon. Moreover, the company is “firmly on track to report a record year of sales and profit growth”, according to soon-to-depart CEO Peter Pritchard. It also has net cash of £77m on its balance sheet. 

My only slight concern right now, aside from the need to replace its leader, is the extent to which inflationary pressures might impact the company going forward. They certainly won’t go away overnight. Then again, that’s true for all sorts of businesses. 

I’d be comfortable buying Pets At Home today but I’d back up the truck if the share price continues to fall over 2022.

Another solid FTSE 250 stock

Kitchen supplier Howden Joinery (LSE: HWDN) is another FTSE 250 stock that benefited from the three UK lockdowns. A hot housing market may have also contributed to what has been something of a purple patch for the near-£5bn-cap business. Like Pets at Home, however, the shares have lost a bit of momentum in 2022 so far. As I type, they’re down 12%.

Howdens is down to report its latest set of full-year numbers (covering the vast majority of 2021) later this month. Given that the company only recently stated that pre-tax profit should be “at the top end of analyst forecasts“, I can’t see its value tumbling from here.

Of course, I may be completely wrong. Now that we look to be coming to the end of the pandemic, there’s a possibility that more existing holders may look to bank some profit. After all, kitchens aren’t something that people replace every year.

Still, a P/E of 17 doesn’t exactly scream ‘overvalued’ when I consider Howden’s solid margins, strong brand, consistently high returns on capital and sizeable market share. So, even if the company does struggle to repeat 2021’s performance, I’m confident that this would still be a worthy addition to my quality-focused portfolio.

Here’s a stock in this index I’d snap up today.

The investment case

The company I’ve been looking at is Pets at Home (LSE: PETS), the omnichannel retailer of pet products. The website says it’s the UK’s leading pet care business, “providing everything a pet owner needs”.

Before I dig into the business, let me point out that there’s a growing industry for pet products in the UK. According to Statista, consumer spending on pets increased to £7.9bn in 2020. What’s more, the share of households owning a pet in the UK increased to 59% last year, up from 41% in 2020. This growth of the wider pet industry should really benefit Pets at Home going forward.

The business has been trading very well recently. In the third-quarter results to 31 December, Pets at Home upgraded its full-year profit before tax to £140m, which was above previous analysts’ expectations. Management said this was due to “strong continued momentum” heading into the final quarter. Indeed, like-for-like revenue growth has been very impressive of late. This was 17.5% for the nine months to 31 December compared to the same period in 2021.

With strong sector tailwinds from the booming pet industry in the UK, and continued business momentum, the investment case looks attractive in my view.

Risks to consider

There are always risks with any investment, so I need to weigh these up for this FTSE stock. Pets at Home did warn of inflationary pressures recently due to ongoing supply chain issues. Price rises may begin to compress profit margins in the business, and therefore earnings may reduce. On the other hand, rising inflation may also dampen consumer spending, and then reduce sales.

Competition is also something to consider. Online delivery has been a major growth driver for Pets at Home during the pandemic. However, a company like Amazon, which is a much bigger online retailer, could steal market share. This would impact growth forecasts for Pets at Home.

Should I buy this FTSE stock?

I need to understand the valuation before I buy the shares. Its price-to-earnings (P/E) ratio shows Pets at Home is valued on a multiple of 20 for fiscal year 2022 (the 12 months to 31 March). The P/E ratio drops to 18 for fiscal year 2023. This isn’t dirt-cheap by any means, but it seems reasonable given the positive momentum in the business.

Another way to look at valuation is using free cash flow yield. For fiscal year 2023, this is expected to rise to 5%. It shows that Pets at Home is cash generative, and it’s planning to use some of this cash to increase the dividend. Analysts are expecting the dividend yield to rise to 3% next year.

All in all, I think this FTSE stock is an excellent buy for my portfolio. It’s not without risks, but the company is trading well, and should benefit from rising pet ownership in the UK.