Investors don’t always find it easy to follow Warren Buffett’s sound advice to “be greedy when others are fearful.” When market’s crash, as they did last week, they sit on the sidelines, paralysed by the fear stocks could fall further. But when you can get double-digit discounts on stocks, I say its time to be greedy.
Discounts of up to 31%
Let me tell you about three stocks in the mid-cap FTSE 250 index that I think are very buyable right now. JD Wetherspoon (LSE: JDW), WH Smith (LSE: SMWH), and G4S (LSE: GFS) are all trading at large discounts to 10 days ago and their 52-week highs.
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Wetherspoons crashed 11% last week, and at 1,326p, as I’m writing, is 24% below its 52-week high. For WH Smith, trading at 1,942p, the numbers are 20% and 27%. And for G4S, at 158p, 15% and 33%.
Barrels of growth
Wetherspoons has grown its business superbly since its flotation in 1992. It’s increased its earnings per share by an average of 14.6% a year, and its free cash flow by an average of 15%. This kind of growth over multi-decades is impressive.
The company uses its free cash flow to buy back and cancel its own shares, pay a small 12p a share annual dividend (a yield of 0.9% at the current share price), and invest in growing its business.
On the back of the business performance and share buybacks, long-term investors have enjoyed a terrific rise in the value of their shares. Growth is set to continue. Management intends to invest more than £200m in expanding its pub estate over the next four years. As such, I don’t see a price-to-earnings (P/E) ratio of 18 as prohibitive.
Travel stocks were hit particularly hard in last week’s market sell-off. This was because of the very clear adverse impact of the spread of the coronavirus on these businesses.
WH Smith has substantial exposure to travel hubs. These include airports and railway stations in over 30 countries. The travel division accounted for two thirds of the group’s trading profits last year. And since then, it’s acquired a leading US travel retailer.
It will certainly be impacted by the coronavirus in the short term. However, the careful management of its high street business, and high growth and increasing size of its travel business, bode well for the longer-term future. I see value in its P/E of 16.5 and 3.2% dividend yield.
I was attracted to G4S last year after it announced plans to de-merge its Cash Solutions division. It had also received unsolicited interest from potential acquirers. I felt its separation from the group’s Secure Solutions business could unlock value for shareholders.
In the middle of last week, the company announced it had agreed to sell the majority of its conventional cash handling business. These assets generated about 8% of group revenue last year. I was a little disappointed by the price, and the fact that it wasn’t a clean break of the two businesses.
Nevertheless, it will give G4S the opportunity to reduce debt, and continue to invest in its faster-growing core Secure Solutions businesses. We’ll know more from the company’s annual results next week, but I see value in the stock. It was trading on a sub-10 P/E before last week’s announcement.