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Share tip: This FTSE 250 stock has an attractive valuation and room to grow


It is great to be back with another monthly tip column for the FTSE 350 portfolio. Markets have started to cool off a little, which is only natural after some big rises since the start of the year. I have decided to prune the portfolio a little, to lock in some gains and take some risk off the table with some of the shares that haven’t done as well as I have hoped.

The two shares I am looking to sell from the portfolio are CMC Markets (+238%) and Entain (-31%)

CMC Markets up 238%

CMC Markets [LON:CMCX] has had a great run, with the business improving significantly over the last few months as capital has flowed back into markets. This share was a perfect example of the fundamental thesis (as set out in the original tip) playing out. An undervalued share, with a tailwind that the market hadn’t yet woken up to. Combining this with a strong chart pattern, and a management team looking to improve the business through cutting costs and you have a winner.

With the latest trading update for CMC markets showing good progress, the shares re-rated swiftly higher and are now valuing CMC very fairly in my opinion. It could go on a little further, but I am comfortable taking profits with a 238% return in around 6 months.

Entain shares down 31%

Unfortunately not all theses play out in the way you might imagine, and Entain [LON:ENT] fits this category. I could very much see the current environment rhyming with the exuberance seen in 2020/21. In the Covid era, money made in cryptocurrencies and tech stocks flowed over into traditional gambling markets and all of the bookies made terrific returns. With the rise of the AI bubble and potential for rates to come down in the U.S, I thought this would light another torch underneath the shares of gambling companies.

To some extent this has happened, with the US’ DraftKings [NASDAQGS:DKNG] up 240% from the lows in 2023. But, sadly Entain has failed to pick up some of the sparkle associated with companies across the pond. I still think Entain’s US joint venture with MGM will create value for the business, and potentially lead to a buy out. However for now, the gloomy U.K business, and regulatory issues overseas cast too long a shadow to make the shares work from here. We are going to cut our losses and move on.

More to come from our latest FTSE 250 share tip

This week trying to replicate the success seen with CMC, I am returning to look for undervalued businesses with potential for strong underlying tailwinds, and I am choosing a former digital winner, which has a very attractive valuation, valuable assets with strong intellectual property and potential to grow with some unique market dynamics. The shares are up strongly this year as the market has woken up to the potential for a turnaround, but I think there is more to come for this digital winner.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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