I believe I have identified two beaten down FTSE 100 stocks that are a good fit for my portfolio.
What is a “beaten down” stock?
There is no singular definition of a beaten down stock. I believe it is one that may have lost value in recent times in respect of share price or the share price may not have increased as much as expected. Furthermore, investor sentiment may have dampened too.
I believe some beaten down stocks have long-term potential upside for returns. This potential derives from having better fundamentals than other stocks with comparable share prices. The share price issues and investor sentiment in any beaten down stock are usually short to medium term issues in my opinion.
Many famous investors, such as Warren Buffett for example, will tell you the best way to create wealth is buy low and sell high. I believe this means sometimes going against the grain and considering stocks that may look on the surface as if they are in trouble.
I must note that not every beaten down stock is a gem in the rough that will blossom over time. Some stocks are on a downward trend due to weakening fundamentals. These fundamentals include a firm’s balance sheet, performance track record, the market it operates in as well the general economy and said business’ place in the current economy. But if the fundamentals are good, I believe there is a chance of a good return on investment (ROI) for my portfolio.
FTSE 100 pharma giant
AstraZeneca (LSE:AZN) is one pick that I consider beaten down. The pharma firm is one of the biggest in the the world and focuses on creating life changing medicines. The stock has not moved as much as expected in the past 12 months in my opinion.
As I write, shares are trading for 8,910p. This time last year, shares were trading for 8,470p, which is only a 5% return. In March 2021, shares fell as low as 6,794p. This share price volatility and recent investor sentiment lead me to class AstraZeneca as a FTSE 100 beaten down stock right now.
I believe AstraZeneca’s disappointing performance in the past 12 months has a lot to do with the fortunes of the Covid-19 vaccine it produced. AstraZeneca was the first company to release a successful vaccine but it rapidly lost this market to competitors such as Pfizer. AstraZeneca’s vaccine has been plagued with issues that have affected investor sentiment. As well as supply issues, a few governments advised against over 65-year-olds having the vaccine due to their fear of a lack of efficacy.
AstraZeneca is still one of the largest pharmaceutical firms and has a lot going for it. I think recent announcements could boost investor sentiment and performance. One of these announcements was regarding a breakthrough in an anti-cancer drug. The cancer drug market is huge, therefore AZN’s breakthrough could offer it a significant revenue boost.
As well as this, AZN continues to invest heavily in tech for vaccine development. It struck a deal with VaxEquity, a firm founded by Imperial College London, that will see AZN reap the benefits of the startup’s RNA technology. This move could be lucrative as it could beat the RNA technology being used by competitors Moderna and Pfizer.
Looking at some of the fundamentals I mentioned earlier, AstraZeneca has a pretty solid balance sheet in my eyes. It has good cash flows and lots of cash, which is good for investment, research and development (R&D), and ensuring operations continue to run smoothly.
AstraZeneca’s performance has been solid over the past few years too. Revenue has increased year on year for the past four years while profit has increased over the past three years. I understand past performance is not a guarantee of the future but I use it as a gauge nevertheless.
AstraZeneca has a propensity to acquire other businesses that boost its own offering. I do like this but it can be a risk too. Completing many acquisitions can be costly and debt levels are beginning to creep up for AstraZeneca. Furthermore, competition is rife in the pharma market and this will no doubt affect AZN as it has before.
FTSE 100 quality assurance pick
Intertek Group (LSE:ITRK) is a quality assurance provider to a multitude of industries worldwide. It offers assurance, testing, inspection, and certification services to its customers. Intertek is viewed as an industry leader and has a huge footprint with close to 44,000 employees across 1,000 locations in over 100 countries. All products and services that firms sell must be tested vigorously and this is where Intertek comes in. I believe it is an overlooked share that have excellent long-term potential. I think it has been beaten down somewhat in the past year or so.
As I write, shares are trading for 4,935p. This time last year, shares were trading for 6,200p, which is a 25% decrease. Despite the poor share price performance, I believe Intertek could be a good FTSE 100 option for my portfolio.
One tell-tale sign for me is that insiders are buying shares. Over the past year, one of the biggest insider share purchases, worth £537,000, has been by company CEO and director Andre Pierre. Insider buying is not a sure fire way of determining that a stock will go up but I believe it is a good signal. I believe it means that those who know most about the stock are confident in it. Furthermore, it means management’s and shareholders’ interests are even more aligned.
In addition to insider buying, I am buoyed by Intertek’s recent announcements. For example, it recently announced a lucrative deal with Globizz, which would see it provide regulatory services for medical devices in the US and Japan. Japan and the US account for a lot of the total medical devices market in total. This should boost its performance and investor sentiment. Furthermore, Intertek announced its first-ever Canadian lab had received approval. This will boost its profile and footprint as well.
Looking at Intertek’s balance sheet, it has positive cash flows, like AstraZeneca, and can continue to expand and acquire other businesses to enhance its offering. Acquisitions could be a risk, however. If it overpays, this could affect financials and investor sentiment as well.
Furthermore, Intertek was severely impacted by Covid-19 and the economic downturn. Economic fragility can hurt companies that offer business services, therefore this is a credible risk for Intertek and its investment viability.
Jabran Khan has no position in any shares mentioned. The Motley Fool UK has recommended Intertek. 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.