Recent volatility has meant that several companies are now trading at very attractive valuations. Today, I’ll be looking at three giants in different sectors and asking whether investors should see these dips as golden opportunities.
For the risk-tolerant
Shares in Barclays (LSE:BARC) have fallen from 264p to 166p since January following a drop in full-year profits and the bank’s decision to put aside an extra £1.45bn provision for PPI mis-selling. A cut to its dividend may also have been the final straw for income investors. Back in March, it was announced that this will be reduced by more than half to 3p per share for this year and the next.
And the positives? Barclays is cheap, on a forecast price-to-earnings (P/E) ratio of under 9. This year’s price-to-earnings growth (PEG) ratio is also extremely low at just 0.21, indicating that investors are getting a lot of earnings growth for their money.
The next 10 days could be bleak for financial stocks. Then again, a vote to remain in the EU could see Barclay’s shares rise substantially on June 24. The question is whether investors are happy to take the risk now. Personally, Lloyds would be my preferred pick due to its dividend looking more secure.
Running backwards?
Whether Mike Ashley performed well when appearing in front of the Commons Select Committee and was truly contrite over matters of governance is a matter for debate. For prospective investors, the bigger question is around whether retailer Sports Direct‘s (LSE:SPD) shares have fallen too far.
Although market uncertainty could see the shares sink further, a P/E of under 10 suggests we’re looking at a fair price for the company, despite its problems. Oddly, the intense and negative media coverage on some dubious (but ultimately fixable) procedures gives me reason to think the shares could now be a decent investment. Remember this is a business that has enjoyed massive growth over the past few years. If management can make the necessary changes while continuing to deliver excellent levels of return on capital employed, Sports Direct should quickly return to form.
My biggest concern is Mr Ashley’s apparent interest in BHS. If I were a shareholder, I’d prefer he focus on steadying his own ship first.
Primed to take off?
Shares in easyJet (LSE:EZJ) have dropped to 1,427p and could have further to go. A recent rise in the oil price above $50 suggests we may have seen its nadir back in January. That’s good news for oil companies, less good for airlines. Elsewhere, a vote to leave the EU could lead to difficulties for low-cost operators and have an impact on the short-to-medium term future of easyJet’s stock.
Buying shares in the company now wouldn’t be madness. This is a decent business with realistic plans for future growth. On a forward P/E of under 9, a good amount of bad news appears to be priced-in and the shares also carry a well-covered yield of 4.7% for 2016. A gradual rise in the oil price doesn’t concern me either since the airline will have recognised that this kind of cost reduction is temporary if admittedly welcome.
For me, the real question is whether investors should hold off until after June 23. A vote to remain and easyJet’s shares could fly. Perhaps a bit of drip-feeding may be in order?
