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Making money from falling share prices: 1 stock that can buck the trend

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Making money from falling share prices is common investing strategy that involves taking a chance on companies whose share price has fallen in recent times, hoping they can find a return to former glories.

There are some good recent examples of this strategy working for active investors. Take Marks and Spencer for example, whose current share price of 240p is up by around 70% in the past 12 months. That said, even this is some way below the company’s five-year peak of 369p back in May 2017.

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Plenty of investments to choose from

There are plenty of potential investments to make if I want to follow this approach. As of November 23rd, there are 117 companies in the FTSE 350 Index who are trading at a lower share price than they were three years previously.

That gives me plenty of options to find a business that might be capable of turning the tide. If I run through these companies by sector, I find recurring patterns.

Sectors in the doldrums

It will come as no surprise to know that businesses associated with entertainment, leisure and travel have not fared so well recently. A broad sweeping generalisation would be that Covid-19 is to blame for this, and there is of course some truth to this.

It is not the whole truth in every case, though. Take a look at travel operator TUI for example. It is currently trading at an 80% lower price than three years ago, and Covid-19 is not the only reason why.

Package holiday operators were already having a tough time before Covid, with the venerable Thomas Cook for example biting the bullet in late 2019. Consumer habits were already changing before Covid, so even if the world returns to ‘normal’ in the next year or so, there is little reason to think TUI will all of a sudden have people rushing to book holidays with it again.

Energy might be the way to go

A good number of the poor recent FTSE performers have belonged in the energy sector. Even the giants such as BP (LSE: BP) have been lagging behind their historical performance, but I think there are reasons to be more optimistic about the sector and certainly BP in particular.

BP remains a financial powerhouse and is using its muscle to transition away from oil. In the current climate – no pun intended – this represents a bold but welcome move. BP intends to divest $25bn in fossil fuel assets by 2025, and is also committed to reducing oil production by 40%.

There are of course some risks associated with BP. Whatever BP’s longer-term plans, it currently derives most of its revenue from oil. The price of Brent Crude has recovered since its 2020 crash, but a 10% drop in value in November 2021 demonstrates how volatile oil prices remain in these pandemic times.

That said, BP remains a business that continues to generate a healthy dividend, and with a share price that has shown signs of recovery of late, I am looking to get into BP for at least the medium term.

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Garry McGibbon has no position in any of the stocks mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

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