The FTSE 250 isn’t as popular as the FTSE 100 among UK investors. However, the mid-cap index is home to several businesses with promising growth potential. And by investing early in these long-term winners, immense wealth can be unlocked.
In fact, that’s precisely how companies like Ashtead Group and Games Workshop went on to become millionaire-making stocks.
Obviously, finding which of the 250 shares in this growth index will be the next big thing is far easier said than done. So I enlisted the help of ChatGPT to see if the artificial intelligence (AI) tool could help narrow the search for the next millionaire-making stock.
Companies to watch
The AI model made a few mistakes recommending companies that aren’t actually in the FTSE 250 index. But after filtering these out, we’re left with Greggs, Grainger, Greencoat UK Wind, and QinetiQ Group (LSE:QQ.). Blindly following any investment recommendation is never a good idea. So let’s do some due diligence.
Greencoat’s actually a stock I already have in my portfolio, which is quite encouraging. However, it’s hardly what I’d describe as an investment with ‘millionaire-making’ potential. After all, the firm invests in wind farms to generate a steady cash flow that funds a dividend. That’s great for income investors to be happy taking on the risk of a higher debt burden, but that’s not what I’m looking for here.
Grainger also seems like an odd pick. The private residential landlord also has a substantial and growing debt pile that could prove quite troublesome, especially since revenues have actually been shrinking since 2022. The company does have a substantial pipeline of new property development projects that could help turn things around, but the UK housing sector doesn’t exactly have the greatest of track records.
What about Greggs? The bakery chain has been hit with some hard times lately. Rising costs have forced the company to raise prices, and that seems to have stalled sales and volume growth compared to historical levels. The firm remains a cash flow-generating machine, which is undeniably a good sign. But a stalled growth engine isn’t a trait of a millionaire-making stock.
A closer look at QinetiQ
So far, ChatGPT’s FTSE 250 recommendations aren’t looking all that promising. Perhaps QinetiQ might help turn things around?
The aerospace company is certainly showing a bit more promise with a growing order backlog, double-digit earnings and sales growth over the last five years, and nice chunky operating margins. The group’s debt load also appears to be quite healthy, with an interest coverage ratio just shy of 10.
Contract award delays in UK and US defence spending have recently created a few headaches, resulting in a profit warning earlier this year. However, due to this volatility, the price-to-earnings ratio now sits at a pretty cheap-looking 16. And with a market-cap of just £2.1bn versus an estimated total addressable market size of more than £30bn, it has lots of room for growth.
Future contract delays or cancellations will remain a prominent risk, especially since governmental defence spending makes up a large chunk of sales. But overall, this seems like a business worthy of a more thorough investigation to see if it could become the next Ashtead or Games Workshop.
