These two FTSE 350 shares have fallen because of the Covid-19 pandemic. For investors that raises one big question: are they now good value and primed to bounce back, or could there be further pain ahead?
A FTSE 350 share that could bounce back
The share price of Royal Dutch Shell (LSE: RDSA) has fallen by more than 55% over the last 12 months. Concerns over the price of oil, economic worries, fears over the future of the industry as environmental concerns move up the agenda, and lastly the cutting of the dividend, have all played a part in reducing the share price.
The falling share price means its shares have hit a 25-year low. The shares certainly appear cheap. They have a price-to-earnings of only around 6.
The risk is it will likely take a while for sentiment to return. However, oil has been out of favour before and share prices have bounced back. There’s still demand for oil, despite the focus on the green alternatives and Shell itself is keen to get involved in green and alternative energy. I think though it’s still unclear if that will ever offset reducing demand for oil over time.
In the short term I don’t know what the share price will do. Longer term, I expect it’ll bounce back. The falls of the last 12 months could well make now an ideal buying time. Although, with analysts turning negative on the stock it’s not without significant risk.
A share price that might continue to struggle
2020 started so well for on-the-move food group Greggs (LSE: GRG). The share price was rising strongly and then came Covid-19. Since then the share price has retreated.
The group recently revealed that like-for-like sales in company-managed shops averaged 76.1% of 2019 levels in the four weeks to 26 September. Sales were 71.2% of the 2019 level in the 12 weeks to the same date.
What’s next? Given sentiment is driving the share price in the short term it’s hard to predict where the share price will go over the next 12 months. The pandemic will be in control of what happens.
Longer term, I see Greggs as less affected by the smaller number of workers commuting than similar companies such as SSP Group. It has many more locations at places like petrol stations and high streets and provides cheaper food. This should make it better positioned once we have a vaccine, or lockdowns become less frequent – but this may be some way off.
For now then, I’d avoid the shares and wait to see what happens. Given the shares have recently jumped back up, another fall could be just around the corner.
Looking at Royal Dutch Shell and Greggs, both have the potential to bounce back. I prefer Royal Dutch Shell as the one with the potential to recover quicker and provide investors with income and growth. But there is risk, as much of its long-term value lies in a successful transition to green energy, which will require huge investment.