A FTSE 250 stock that could soar on a weaker pound


Family with protective masks at the airport

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The pound has fallen 12% against the dollar over the past year, which has prompted me to watch the FTSE 250 shares which could profit from sterling’s weakness.

Last week, Financial time‘ personal finance editor Stefan Wagstyl noted the pound’s sharp decline against the dollar before recommending readers sell FTSE shares and add foreign securities.

He wrote: “Global equities selling has hit the UK much harder than its rivals… UK equities have done much better, with the energy-heavy FTSE 100 slipping just 3%.

“So this could be a moment to take advantage domestically and invest abroad.”

There’s nothing wrong with investing overseas, but I don’t think British investors worried about a weak pound should look abroad.

Here are UK stocks that could actually benefit from a weaker pound.

An opportunity to earn in foreign currency?

Victrex (LSE:VCT) manufactures polymers that are sold in more than 40 countries, although its manufacturing facilities are based in the UK.

Last year, revenue generated in the UK made up less than 1% of Victrex’s revenue, allowing the company to benefit from the pound’s decline against other major currencies.

The company is a world leader in the production of polyether ether ketone (PEEK) polymers, which are extremely strong and conduct electricity – making lightweight thermoplastics candidates for replacing clunky metals in many industrial applications.

PEEK polymers are used in hundreds of engineering applications – for example, to make bearings, piston parts, pumps, HPLC columns, compressor plate valves, and cable insulation.

But at 18 times the expected earnings and with a moderate dividend yield of 3%, Victrex doesn’t really look like a screaming buy at first glance to me.

In addition, the company’s profits have slumped over the last few years, with EBITDA dropping from £146 million in 2018-19 to £110 million in 2021-22 – and in May this year, the company reported that cost inflation had squeezed operating profit margins. .

Ready to get better…

But Victrex could be on the cusp of turning things around, with applications for its PEEK polymer still developing. After all, the material was only discovered about 40 years ago, leaving time for more use cases to be discovered.

Ongoing clinical trials are testing PEEK polymers in knee replacement surgery, for example.

Meanwhile, PEEK polymers are likely to enjoy the drag of the green energy transition, with potential uses in electric vehicles and their charging infrastructure, as well as in wind turbine components and in infrastructure for storing and transporting hydrogen.

For that reason, I think Victrex is much more likely to experience temporary malaise than a terminal death spiral.

So, with possible brighter days for the company, as well as a source of income coming from more than 40 international markets, I see Victrex as a good stock to protect my portfolio from further weakness in the pound – as it earns in foreign currencies when reporting in pound.