The Halloween horrors have came early for the FTSE 100 this year, and while the index has broken out of its severe October tailspin in more recent sessions, there’s no question that further drops could be around the corner given the tense macroeconomic and geopolitical backdrop.
Regardless of this, I firmly believe that for long-term share investors — i.e. those looking to buy and hold shares for a minimum of five years — this recent weakness provides a great opportunity to grab a bargain.
Take Melrose International (LSE: MRO), for example. It’s lost more than 20% of its value in the month to date, adding to late September’s painful losses and it last closed at its cheapest since September 2016. Meanwhile Schroders (LSE: SDR) has been one of the Footsie’s worst October performers too. It’s dropped around 16% since the turn of the month and is now changing hands at its lowest level since August 2016.
I reckon both businesses are hot buys as of right now.
Terrific trading updates
This severe share price trouble comes in spite of both companies issuing positive trading releases in recent weeks.
I’ve tipped Schroders to be a big profits generator in coming years thanks to its Asian expansion programme, though the investment community remains spooked by the fund outflows that struck earlier in the year.
It’s righted the ship since then, however, and third-quarter numbers showed total assets under administration finally rising from levels seen at the turn of 2018, up to £439.1bn as of September from £435.7bn at the start of January. Still, share pickers greeted this consensus-beating result with little more than a shrug.
Things haven’t been much better at Melrose either as its value started collapsing almost straight after the release of half-year results in September. This is even though the turnaround specialist advised that its major acquisition of GKN had revealed no nasty surprises upon closer inspection, and that the engineering business’s Aerospace division had incurred no additional, painful charges.
Trading may be a bit tough for some of its divisions right now, but the company’s long-term outlook remains robust, aided by the vast investment and restructuring steps it is making with regards to GKN.
Dancing dividends
This bright profits picture at Melrose — rises of 21% and 20% are predicted for this year and next — means dividends are expected to keep rising as well. Last year’s 4.2p per share should rise to 4.4p this year and again to 5.2p next year, analysts say.
Dividend yields clock in at an inflation-beating 2.8% and 3.2% therefore, and with that aforementioned share price weakness also leaving the Footsie firm on a forward P/E ratio of 12.9 times, I consider it to be a terrific bargain to buy today.
Schroders is even cheaper, the business sporting a P/E multiple of 11.9 times, while yields also blast past those of its FTSE 100 compatriot. Last year’s 113p per share reward is predicted to move to 113.7p this year, resulting in a 4.5% yield. And for 2019, the yield moves to 4.6% thanks to a projected 117.7p dividend. Like Melrose, I reckon the asset manager is a great dip buy today.
