Gamma Communications PLC, Fenner plc, Centrica PLC And Sky PLC: 4 Bargain Basement Stocks?

Are these 4 stocks cheap enough to buy? Centrica PLC (LON: CNA), Gamma Communications PLC (LON: GAMA), Fenner plc (LON: FENR) and Sky PLC (LON: SKY)

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With the FTSE 100 having fallen by 13% since its April all-time high of 7,100 points, a number of investors are sensing that now could be a great time to buy high quality stocks at low prices. After all, the global growth outlook is not hugely different than it was back in April.

Certainly, expectations for China have been revised down, but, realistically, the world’s second-largest economy was never going to continue growing at such a high rate without the odd bump in the road. And, with the UK, US and European economies showing signs of further improvement, the long term outlook for shares seems to be rather positive.

This, then, is good news for communications services provider, Gamma Communications (LSE: GAMA). It has today reported an increase in its customer base during the first half of the year, with revenue rising from £84m in the first half of last year to £92m in the same period of the current year. And, with major new contracts being won and profit rising to £7.6m on a pretax basis, the market appears to be upbeat on the company’s prospects, with its shares rising by as much as 7% today.

However, Gamma appears to be somewhat overpriced, with the company having a price to earnings (P/E) ratio of 18.9 even though its bottom line is forecast to rise by just 4% next year. This means that, while the company’s performance is upbeat, its share price may already fully reflect its medium term potential.

Meanwhile, Fenner’s (LSE: FENR) trading update released today prompted a relief rally in the engineering company’s shares. That’s because the reinforced polymer technology specialist confirmed that it is on-track to meet full-year expectations, which is positive news following a profit warning earlier in the year.

Certainly, the year’s results are not due to be pretty, with net profit expected to fall by 34%. And, looking ahead to next year, a further fall of 21% is being anticipated. But, with a forward P/E ratio which takes both of these falls into account of just 14.1, Fenner appears to offer a wide margin of safety, as well as a superb yield of 6.8%.

Centrica (LSE: CNA) is another company that is enduring a challenging period. A change in management team earlier this year prompted a 30% cut in dividends and a refreshed strategy which, while potentially positive in the long run, may cause investor sentiment to come under pressure in the short run.

However, Centrica’s new strategy of focusing on becoming a pure play energy supplier seems to be a logical one. It has decided that it will never be a global oil and gas player, and so will seek to sell numerous assets within this space over the next couple of years. This could prove to be a hit or miss move depending on the price of oil, but what is certainly a sound change is for Centrica to become more efficient. In fact, it is targeting £750m of cost savings per year over the next five years which should have a positive impact on its bottom line. For this reason, and a low P/E ratio of 13.2, it appears to be worth buying.

Clearly, the UK quad play market (broadband, mobile, landline and pay-tv from one provider) is becoming more competitive but, looking ahead, Sky (LSE: SKY) is expected to perform relatively well. For example, its bottom line is forecast to rise by 14% in the current year and this translates into a price to earnings growth (PEG) ratio of just 1.2. And, with Sky continuing to differentiate its content via unique channels and more individual content versus its rivals, it could retain its competitive advantage and maintain current margin levels. So, while not a dirt cheap stock, it appears to be worth buying right now.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of Centrica. The Motley Fool UK has recommended Centrica and Sky. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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