These 3 FTSE 100 shares have crashed hard in 2020. Is it time to buy?

Plenty of FTSE 100 shares have fallen badly this year. But do these three big fallers have recovery potential in 2021 and beyond?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Saying some FTSE 100 shares have crashed in 2020 is perhaps stating the obvious. Rolls-Royce and International Consolidated Airlines spring to mind as the big casualties. Today, however, I’m examining three others that have dropped heavily in 2020 but which don’t make the headlines in quite the same way.

FTSE 100 shares I like

I’ll start with the one I’ve felt most positive about over the years. It’s Melrose (LSE: MRO). Melrose invests by buying engineering companies it thinks are seriously underperforming. It then tries to turn them round to generate a profit. It’s been very successful at it over the years, but it’s clearly a business facing challenges.

The Melrose share price has been picking up over the past few months. But it’s still down 34% over the year. Year-by-year earnings figures don’t mean a lot, because profits are to a large extent dictated by the timing of acquisitions and disposals. So in a year like 2020, earnings should be close to zero. Melrose, I think, is one of those FTSE 100 shares where a long-term horizon is not just preferable, but of absolute necessity.

Dividends are up and down too, for the same reason. So I wouldn’t rely on Melrose for steady income. But that’s fine by me. I’d buy now.

Events management, ouch

Next up is Informa (LSE: INF). Its FTSE 100 shares have also been picking up, but they’re still down 37% on the year. Informa is in the business information business. As well as publication, it also manages events and exhibitions. And they’ve largely halted during the pandemic.

So, an 80% drop in forecast earnings comes as little surprise. But it’s still positive. And I reckon any company that can remain in profit this year has an advantage. Analysts are expecting Informa’s comeback to be gradual, with 2021 earnings still around half of 2019’s. But I would expect a staged recovery for a company like this. Its business customers themselves need to get back on their feet first. And I’d expect an Informa profit recovery to follow once FTSE 100 shares in general get closer to normality.

We’re looking at a 2021 price-to-earnings of 22. I see that as good value for a company at that stage of recovery. I can see it coming down quite rapidly.

FTSE 100 share price potential

Finally, I turn to ITV (LSE: ITV), whose shares are also down 37% this year. But yet again, the ITV share price has been regaining some lost ground. ITV’s fall has actually pushed it into the FTSE 250 and away from FTSE 100 shares. But it started the year as a FTSE 100 stock, so I think it’s fair to consider it one of the top index’s casualties.

So what now? ITV has recorded three years of falling earnings. And for Covid-19 year, analysts have it marked down for a further drop of more than 30%. The dividend is also on the slide. It looks set to yield just 2% this year, even after the share price fall.

There’s a modest rise indicated for 2021, and forecasts suggest a dividend rebound to yield close to 6%. I’m wary of such forecasts. But they do suggest a 2021 P/E of under nine, which I think shows a decent safety margin. I rate ITV as a long-term recovery buy. And I think it could rejoin the rest of the FTSE 100 shares before too long.

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.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended ITV and Melrose. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Penny stocks to consider buying while their prices are this cheap

Some of the penny stocks I've been watching have already climbed above the 100p level. But I see potential in…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

Revealed! One of the hottest growth, value, and dividend shares to buy today

This high-dividend, low-cost company is also one of the London stock market's most exciting growth shares, writes Royston Wild.

Read more »

Investing Articles

£20,000 in savings? Here’s how I’d target a £2,219 monthly passive income with FTSE 100 shares

Investing in FTSE 100 shares can be a great way to turn a regular investment into a life-changing passive income…

Read more »

Investing Articles

These are the most popular 2024 Stocks and Shares ISA picks so far

After a few tough years, it looks like the 2024 Stocks and Shares ISA season is getting off to a…

Read more »

Investing Articles

This FTSE 100 ETF may be the simplest way to become a stock market millionaire

Ben McPoland considers one very straightforward stock market investing strategy that could lead to a million-pound portfolio.

Read more »

Investing Articles

I’d buy 11,220 Legal & General shares for £200 a month in passive income

Our writer considers how much money investors would have to put into Legal & General (LON:LGEN) shares to target £2,400…

Read more »

Fireworks display in the shape of willow at Newcastle, Co. Down , Northern Ireland at Halloween.
Investing Articles

These 2 magnificent FTSE 250 shares are on sale right now!

These FTSE 250 companies still look cheap, despite recent share price gains. Here's why our writer Royston Wild thinks they’re…

Read more »

Blue NIO sports car in Oslo showroom
Growth Shares

Down 36% in 2024, how low could NIO shares go?

The electric vehicle sector has seen some tremendous volatility in recent years, but what does the future hold for NIO…

Read more »