2 FTSE 250 shares I think can beat the market

Over the past year, the FTSE 250 the index has lost 13% of its value. The longer term is also not worth it – over five years, the index is down 5%.

I think there are some potential deals for portfolios in seemingly unfashionable indexes that hold smaller businesses rather than giants FTSE 100. Here are two that I think could outperform the broader stock market in the coming years. If I had the money to invest today, I would add both to my portfolio.

Howden Joinery

What will happen to the housing market next year?

I don’t know. Fears about the risk of a property market crash may help explain why stocks in the FTSE 250 members Howden Joinery (LSE: HWDN) has fallen 13% over the past year.

However, no matter what the property market does, builders need the timber part of their business for renovations and buildings. Howden has developed deep relationships with trade customers and has a distinctive customer proposition. A network of local depots with goods immediately available from stock is a strong asset.

Last year’s revenue was up 11%, profit before tax was up 4% and the annual dividend per share was up 6%. The company has been buying back its own stock lately. It trades with what I see as an attractive price-to-earnings (P/E) ratio of just 10.

Risk and reward

The price may reflect investors’ concerns that the uncertainty of the property market could affect demand for timber, building materials and the core kitchens on offer, affecting profits at Howden. Inflation is also a threat to profitability.

But I expect strong long-term demand in the building sector and Howden has a well-established business. I see the trade relationship as a competitive advantage and think that the stock will do well in the next five to 10 years. Despite the late fall, the stock is up 44% over the past five years.

Computing center

I can now buy shares in it Computing center (LSE: CCC) for slightly less than three quarters of the price I would have paid just a year ago.

But with a P/E ratio of 14, this proven player looks cheap to me given its long-term prospects. Last week the company announced its 2022 results and they look strong to me. Revenue rose by 29%, pre-tax profit rose slightly to £249m and the dividend was raised by 2%.

This isn’t the stuff of legend, but it’s a solid performance in a market where many companies are cutting IT costs.

With its broad reach, deep client relationships and broad service offering, I think the FTSE 250 company looks set to continue to thrive. In the long term, demand for IT services should be high.

Diluted budgets are a risk to short-term profits and gains. Another risk is the impact of competition on prices and profit margins. Computacenter operates in an interesting business area and several multinational companies want to increase their market share, possibly at a cost.

But I remain optimistic about the company’s prospects and am pleased with last week’s results. I think the current price is pretty low for a mid-sized professional services company with Computacenter’s proven capabilities.