Looking to make enormous capital gains next year? Here are two FTSE 250 shares that are tipped for magnificent rebounds.
Grainger
Interest rates have weighed heavily on property stocks like Grainger (LSE:GRI). They’ve depressed net asset values (NAVs) and pushed firms’ borrowing costs northwards.
In the year to date, Grainger — the UK’s largest-listed private residential landlord — has fallen 16.5% in value. I think this fails to reflect the strong fundamentals of Britain’s home rentals market.
City analysts think so, too. It’s why the 10 analysts with ratings on the business have slapped a 12-month price target of 297.1p per share on it.
That represents a 32.3% premium from current levels.
Rent growth is slowing but still rising at a healthy pace. Outside London, this averaged 4.5% according to Rightmove’s latest estimates. Growth is tipped to cool to 3% next year, but I’m confident rents at Grainger should increase much more strongly.
Not only does the firm focus on urban areas where supply is especially limited. Like other build-to-rent operators, many of its properties offer amenities and a level of luxury that more affluent tenants are willing to pay extra for.
Grainger — which has 11,069 private rental homes on its books — is rapidly expanding its portfolio to capitalise on this fertile landscape. Today, it has a £1.4bn development pipeline consisting of 4,730 new properties.
There’s no guarantee that interest rates will fall significantly from current levels. If so, this could weigh on Grainger’s share price again.
But on balance, and given the likely trajectory for inflation, I think things are looking up for the FTSE 250 company next year.
Greencoat UK Wind
Renewable energy stock Greencoat UK Wind‘s (LSE:UKW) share price has also fallen due to fears over higher interest rates. But this is not all.
Like other wind farm operators, it’s dropped on concerns over what a second Donald Trump presidency will mean for the entire renewables sector. All this means the firm’s share price is down 16.8% so far in 2024.
I think this plunge is tough to justify. And particularly with Greencoat shares now trading at a near-20% discount to a NAV per share of 158.4p.
As a potential investor, I’d be more concerned by future weather-related threats. When the wind drops, profits can fall sharply in line with energy generation. Turbine maintenance costs can also rise due to extreme weather events.
However, I still believe the potential benefits of owning this FTSE 250 share outweigh these risks. Regardless of President Trump’s intentions, demand for green energy should continue climbing as the climate emergency intensifies.
Greencoat UK, in fact, could potentially be a big winner following Britain’s own recent general election. The new Labour government plans to double onshore wind power, and quadruple offshore wind energy, by 2030.
This could underpin exceptional profits growth over the long term. And in the meantime, investors can look forward to juicy capital gains, if broker projections prove correct.
The eight brokers that rate Greencoat UK think it will reach 174p per share in the next year. That’s a 36.9% premium to today’s price.
This post was originally published on Motley Fool
