These shares are near their lowest price in a year. Are they bargains, or duds?
Although the market has rallied recently, some shares are still struggling. This includes small caps through to FTSE 100 (UKX) blue chips. Sometimes share prices fall for good reasons, but often the market gets it wrong. Spotting the difference is what separates good investors from the bad.
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I've trawled the market to find shares trading close to their lowest point in a year. Here are the largest companies I could find that are trading at beaten-up valuations.
| Company | Market Cap (£m) | Price (p) | % off 52-week low | P/E | Yield (%) |
|---|
| Anglo American (LSE: AAL) | 26,893 | 1930 | 1.2 | 6.2 | 2.5 |
| Wm Morrison Supermarkets (LSE: MRW) | 6,616 | 271 | 4.1 | 10.4 | 4.0 |
| Eurasian Natural Resources (LSE: ENRC) | 4,686 | 364 | 0.7 | 3.7 | 4.8 |
| EVRAZ (LSE: EVR) | 2,888 | 216 | 1.2 | 8.1 | 5.1 |
| Melrose (LSE: MRO) | 2,588 | 204 | 1.3 | N/A | 3.6 |
| Vedanta Resources (LSE: VED) | 2,274 | 834 | 1.3 | 16.1 | 4.3 |
| Ashmore (LSE: ASHM) | 2,216 | 313 | 3.5 | 11.9 | 4.7 |
| ICAP (LSE: IAP) | 1,944 | 301 | 0.3 | 10.6 | 7.3 |
| Songbird Estates (LSE: SBD) | 1,605 | 103 | 3.0 | N/A | N/A |
| Lonmin (LSE: LMI) | 1,338 | 660 | 0.3 | 7.0 | 1.5 |
| Ferrexpo (LSE: FXPO) | 1,040 | 177 | 0.9 | 2.8 | 2.4 |
| Carillion (LSE: CLLN) | 1,025 | 238 | 1.4 | 6.3 | 7.1 |
| Henderson (LSE: HGG) | 998 | 91 | 0.6 | 13.5 | 7.7 |
| KSK Power Ventur (LSE: KSK) | 717 | 450 | 1.1 | N/A | N/A |
| Carphone Warehouse (LSE: CPW) | 596 | 126 | 4.8 | 10.7 | 4.0 |
Four of these looked particularly interesting.
1) ICAP
Shares in inter-dealer broker ICAP have been hit by the LIBOR scandal. While ICAP does not participate in setting LIBOR, two members of ICAP staff were suspended by the company as a result of ICAP's own investigation.
The company's recent trading statement confirmed that management expects pre-tax profits for the full year to come in at around £350m. This compares to £354m achieved the prior year. ICAP hopes to achieve substantial cost reductions (over £50m) this year. While it is good that shareholders' money is being saved, it is concerning that cuts are required if profit is to stand still.
The company has increased its dividend to shareholders year-on-year for the last six years. The payout has advanced, on average, 12.3% per annum. This puts the shares on a prospective yield of 7.4%. ICAP's price-to-earnings (P/E) ratio against 2013 forecasts is just 7.9.
The financial sector could rally significantly if eurozone concerns are dealt with. ICAP looks like a unique opportunity to gather a huge dividend in the meantime.
2) Carphone Warehouse
Given the British public's apparent inability to walk or drive without using their mobile phone, you may be surprised to see shares in retailer Carphone Warehouse languishing.
In fact, the shares are down almost 70% in the last 12 months. In Carphone Warehouse's case, however, this is not a sign of weakness. In April, the company returned ￡813m to shareholders following the sale of its share of Best Buy Mobile.
This leaves Carphone Warehouse shares trading on just 10.5 times consensus earnings per share (eps) forecasts for 2013. The dividend is expected to be maintained to give a yield of 4.0%. As such, it is one of the most highly rated high-street retailers. Compared with the rest of its sector, Carphone Warehouse only looks attractive on a dividend basis.
3) Ashmore
Ashmore is one of those big companies you've probably never heard of. Ashmore came to the market in 2006. The company is an investment manager focused on emerging markets -- today, it manages over $63bn of assets.
Revenues at the company more than doubled between 2006 and 2011. In that time, eps at the company increased from 10.1p to 26.6p, increasing in every year but 2009. Somewhat disappointingly, the company dividend did not keep up with profits, rising from 8.3p to just 14.5p in those years.
Like most fund managers, Ashmore does well when the markets it invests in do likewise. If investments rise in value, Ashmore's revenues benefit from a double-whammy: assets under management rise and more investors are attracted. Obviously, the converse is also true: losses in emerging markets would damage Ashmore's business and its shareprice.
Despite its growth in recent years, Ashmore appears to be trading at a discount to peers such as Schroder's (LSE: SDR). That seems hard to justify, unless you think emerging markets will underperform in future.
4) EVRAZ
EVRAZ has the kind of share price graph I can only describe as sobering. Since reaching 460p at the end of January, the shares have fallen in each subsequent month. The experience of EVRAZ shareholders this year should remind us all that the wrong equity investments can be bad for your wealth.
EVRAZ is a natural resources company with the largest part of its operations in Russia. The company is one of the largest producers of steel in the world. EVRAZ is the only way to get real exposure to steel in the FTSE 100.
While the company's share price has disappointed recently, it is not the only miner in the doldrums. The forecast earnings and dividend mean the company has some value characteristics. With this sector, however, the market will often price in a political discount. This means EVRAZ may have less upside than some peers that are operating elsewhere.
If you are drawn to shares that are out of favour then you might be a contrarian investor. Some of the very best investors are contrarians, such as top UK fund manager Neil Woodford. A big part of his outperformance over the rest has come from NOT following the crowd into dotcoms during the late 90s tech bubble. The result? A massive 347% outperformance.
Today, you can learn how Neil Woodford does it in our free report "8 Shares Held By Britain's Super-Investor". Learn from one of the best in the business. The report will be delivered free to your inbox.
Further investment opportunities:
> David does not own shares in any of the above companies.
