It can certainly pay to keep watch of your favourite stocks in volatile markets, especially in the summer months. It only takes one or two clumsy sellers to have a much more pronounced effect on share prices, dragging some companies down to attractive prices.
As such, part of my investing strategy involves looking at shares that have been hit over the past week by Mr Market, with a view to seeking out potential bargains. Interestingly enough, all of these shares have underperformed the FTSE 100, which has risen over the past week, potentially creating an opportunity.
Here are five that appeared on my radar:
Randgold Resources
It is hardly surprising to find Randgold Resources (LSE: RRS) among the week’s biggest fallers. It seems that investors’ appetite for gold, usually seen as a safe haven by most during times of stock market volatility, has waned recently.
This has left the shares trading close to five-year lows, as brokers become more negative on the stock, the consensus downgrading their earnings forecasts by 1.5 cents to 2.5 cents for the year ending 31st December 2015.
Some investors looking for bargains following the recent volatility may be tempted to open or top up a position at these prices. However, with the stock trading on over 22 times forward earnings and yielding just over 1%, I can’t say I’m tempted.
GKN
Another stock seemingly in the doldrums is GKN (LSE: GKN). Its shares are off by nearly 20% from recent highs. It seems that investors are fretting about the recent volatility in stock markets in general, but especially China, where investors hope to see the growth in middle-class numbers, and subsequent car sales.
Over the last 12 months, brokers have lowered their consensus forecast EPS (earnings per share) for the year ending 31st December 2015 from 31.2 pence per share to 27.22 pence currently. This is expected to rise to 29.9 pence in the following year.
This places the shares on a forward price to earnings ratio of just over 10 times earnings, which seems a bit negative to me. Additionally, investors can expect to receive a dividend of around 3%.
With the interim results expected to be announced on 28th July, it may be worth holding off the buy button – just in case trading has deteriorated since the trading update released on 6th May.
ARM Holdings
In stark contrast to the last two stocks, analysts have been busy upgrading their earnings estimates for ARM Holdings (LSE: ARM) over the last 12 months. Analyst consensus estimates have risen from earnings to the year ended 31st December 2015 of 29 pence per share to 31.5 pence per share currently.
It seems investors are slightly wary of the murmurs alluding to smartphone market saturation, combined with a strengthening pound as Mark Carney has hinted that interest rates could rise as early as January 2016.
While the shares in this chip maker don’t scream “cheap”, exchanging hands at around 29 times forward earnings and yield less than 1%, I believe that investors should take a second look at this quality company.
Johnson Matthey
Another share out of favour with investors is Johnson Matthey (LSE: JMAT). Once again, we have seen analyst consensus earnings forecasts falling over the last 12 months; however, the shares have been on a steady slide since the end of May.
With the recent slide in mining shares, it comes as no surprise that these shares will have fallen as well. That said, company management are busy focusing the business. Following the disposal of the research chemicals business on 25th June this year, CEO Robert MacLeod said:
“The divestment of the Research Chemicals business is a further step in delivering our long term strategy to focus the group on growth areas where we can apply our expertise in complex chemistry to create long term value for our shareholders.”
Investors will get an update on progress when the company announces its Q1 IMS on Wednesday – should all be on track, the shares could well spring higher from these recent lows.
BP
Shares in BP (LSE: BP) initially rose when it announced its agreement with the US authorities in final settlement for damages following the tragic accident in the Gulf of Mexico in 2010.
The $18.7 billion settlement takes the total cost to almost $54 billion, though the pay-outs stretch over the next 18 years.
However, the bounce proved short-lived as the price of oil slide on the back of Iran being allowed to sell more oil into the market, putting pressure on the sector as a whole.
Analyst consensus earnings have actually been upgraded since hitting lows of 35 cents per share in March 2015, they currently stand at 41 cents per share. That said, should oil continue to slide, I suspect that those upgrades could be short-lived.
The Foolish Bottom Line…
So there you have it – five shares that may be trading at bargain prices – and as the chart shows, have underperformed the FTSE 100 recently.
As we continue through this year and subsequent ones, we will see the prices of these and many more shares fluctuate from day to day. We all know that traders will trade, brokers will continue to comment… but as investors, we need to keep a level head, focus on the long term and cut through the noise.
