In today’s article I’m going to take a look at three big-name stocks whose shares were sold off in the recent market correction.
HSBC Holdings (LSE: HSBA), BT Group (LSE: BT-A) and Stagecoach Group (LSE: SGC) are all at least 10% cheaper than they were eight weeks ago.
Is this a buying opportunity for investors with fresh cash to deploy?
HSBC
Shares in the UK’s largest bank have now fallen by 21% from their April peak of 647p. Yet little has changed at the firm, whose earnings per share are expected to rise by 12% this year.
Investors’ confidence in HSBC may have been shaken by concerns over slowing Chinese growth. However, I’d say that most of this risk is now reflected in the bank’s share price. HSBC trades at a 20% discount to book value, on a forecast P/E ratio of just 9.8.
Of course, the big attraction is the bank’s 6.5% prospective dividend yield. The expected $0.51 per share dividend should be covered around 1.6 times by earnings, and looks very safe to me.
For income investors, I believe now could prove to be a very good time to buy HSBC.
BT Group
BT shares have also fallen sharply recently, dropping 11% from their July high of 480p to around 425p.
This fall has improved the dividend outlook for BT investors. This year’s forecast payout of 14p now provides a 3.3% yield, which is in line with the FTSE 100 average.
Although I’ve had concerns about BT’s pension deficit and debt levels in the past, I have to admit that the firm’s operating success has so far proved me wrong. I’ve underestimated BT’s ability to generate free cash flow from its 18% operating profit margin.
Net debt fell by £1.9bn to £5.1bn last year, thanks to a £1bn share placing and good cash generation. Although there is a risk that BT’s television ambitions may struggle to turn a profit, overall I believe the shares could be a good buy at today’s price.
Stagecoach
Bus and rail operator Stagecoach announced this morning that it had retained the East Midlands Trains franchise, which it will now operate until at least March 2018. Although the firm says that the franchise won’t have a material effect on full-year profits, it does help cement Stagecoach’s position as one of the UK’s major rail operators.
Stagecoach shares have fallen by 18% since they peaked at 420p earlier this summer. Even more than with HSBC and BT, it’s hard to see why. Stagecoach’s mix of US and UK public transport should be unaffected by emerging market concerns and short-term volatility.
Based on the latest broker forecasts, earnings per share are expected to rise by 20% in 2015/16 and by 8% during the following year. This puts Stagecoach shares on a forecast P/E of about 11. The dividend is also expected to continue rising, offering a prospective yield of 3.3% this year, rising to 3.6% next year.
In my view Stagecoach could be a good long-term income buy, with a payout that should comfortably keep pace with inflation over the long term.
