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He FTSE 250 is in one of those rare moments when he has been left behind FTSE 100. But I wonder if we could be on the verge of a new surge.
After soaring during the Covid crisis, mid-cap stocks have fallen out of favor. And over the past five years, the index has gained just 4%. This compares with 11% for its London big brother and goes against the long-term trend.
Over the decades, the FTSE 100 has returned average total returns of around 7% a year, while the FTSE 250 has been closer to 11%.
It appears that UK investors have become risk averse. But I think that is changing and I think the FTSE 250 could be hiding explosive growth potential.
Telecommunications growth
Telecommunications Plus (LSE:TEP) shares lost a couple of per cent on results day on 18 June. And they are well below the highs they reached in 2022.
But the stock is still up 24% over the past five years. And I wonder if a new bull run could be on the cards.
The firm operates the Utility Warehouse brand… energy, water, telephone and broadband all in one. And forecasts show that combination will generate growing profits in the coming years.
We delivered earnings per share (EPS) of 109 pence by 2024, up 9.9% and ahead of forecasts. It looks like we could see 120 pence per share by 2026.
Growth assessment
And if that comes to fruition, we could have a price-to-earnings (P/E) ratio of 15 by then. For a stock with growth potential, that could be cheap.
However, the stock's past volatility weighs against it and it is in a highly competitive market. The valuation, while it might be low for a growth stock, might look high compared to other utilities.
But it seems like a very efficient operation to me and I think that could move it forward.
Biotech growth
PureTech Health (LSE: PRTC) has had a good 2024 so far. But its shares are well below their 2021 highs and are down 8% in five years.
PureTech helped found schizophrenia treatment company Karuna. So Bristol-Myers Squibb bought it for $14 billion, meaning PureTech's initial $18.5 million investment generated more than $1 billion.
With fiscal year results released in April, CEO Bharatt Chowrira spoke of “our track record of clinical success, which is six times the industry average“.
This is not a stock to invest in lightly and you would need to delve deeper into the risks of the specific sector before considering it. And the lack of regular profits derived from the company's business model is a cause for concern.
Fallen growth
I also look at actions like ocado, a former favorite growth stock. Have the sellers lowered the price too much? I think they could do it.
You have changed places with your partner. Marks and Spencerbeing demoted to the FTSE 250, while M&S now has a seat in the FTSE 100.
Lack of profits is the big problem. But when we see earnings on the horizon, I think that could spur a new period of growth.
