Stock market

1 FTSE 250 Stock I’m Buying Handover Fist

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I own a few. FTSE 250 I have stocks in my investment portfolio, but there is one in particular that I have been buying recently. There is stock JD Witherspoon (LSE:JDW).

At first glance, the pub business is not an obvious choice. But for investors with a long-term perspective, I think it could be a great choice.

Low prices

The investment thesis is relatively straightforward. JD Wetherspoon offers lower prices than its competitors in an industry that I believe will remain in demand for the long term.

It’s being in a powerful position, but that’s only part of the equation. It’s one thing to offer customers low prices, but unless it’s backed up by low overhead costs, it doesn’t make for a good business.

But Witherspoon costs less than its competitors. Its biggest leverage in this regard comes from its property portfolio – 71% of which it wholly owns.

This means the company will not have to make lease payments on around three-quarters of its pubs. And it can pass those savings on to consumers in the form of lower prices.

Election threat

Inflation is a challenge for almost any business, but especially for those that focus on offering low prices to customers. And Witherspoon is no exception.

Generally, high input costs pose a dilemma for companies. They either have to raise prices to pass the risk of losing customers, or face declining margins and profits.

The rate of inflation is gradually coming down. But Labor has promised to increase wages if it wins the next election and bookmakers think it has a decent chance.

It could have a similar effect on companies like Witherspoon. And investors need to be mindful of the risks the business faces.

Market position

However, a few things are worth noting. The first is that high staff costs are likely to be a problem across the pub industry rather than being specific to Wetherspoon.

This means that the firm’s competitors will face the same problem of maintaining margins as costs increase. But the problem is putting more pressure on businesses focused on lower prices for consumers.

Another is that Witherspoon is exceptionally good at finding a way out of a dilemma. Rather than face price hikes or lower profits, it has looked for ways to cut its costs elsewhere.

This brings us back to lease obligations. By investing in its properties and buying them outright, the company has been able to maintain both its low costs and its profit margins.

A stock I’m buying.

I think the company is exceptionally well positioned to address the biggest threat facing the pub industry – the threat of high staffing costs. And there’s another potential boost on the horizon.

Lower interest rates should boost consumer spending and help the company improve its balance sheet. So I’ve been buying stocks for a while now and plan to continue.

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