Buying great stocks and holding on to them for years is the Fool UK philosophy in a nutshell. Fortunately, the wobble seen in markets since the beginning of 2022 makes grabbing shares for great prices considerably easier. In fact, many of the UK’s biggest stocks — those found in the FTSE 100 — are starting to enter bargain territory, in my view.
Luxury…on the cheap
Lifestyle brand Burberry (LSE: BRBY) is just one example. Its share price has dropped 15% since the beginning of 2022, leaving the FTSE 100 stock now languishing close to its 52-week low.
This isn’t completely unwarranted. The rise of Covid-19 infections in China isn’t ideal given that this is a key growth market for the business. Although only representing a small proportion of total sales, the Ukraine-Russia conflict has also pushed Burberry to shut its stores in the latter. There’s a risk that things could get worse on both fronts.
As a holder of the stock already, it’s tempting to get frustrated and sell up. Then I remind myself of why I invested in Burberry in the first place. This is a coveted brand with a great history. On a more technical note, the company has long generated great returns on capital — the metric beloved by master investors such as Warren Buffett and Terry Smith. The balance sheet looks healthy and the 3% dividend yield is some compensation for being asked to wait for a recovery.
In sum, I won’t be selling my stake anytime soon. Actually, I think now might already be an excellent opportunity for me to top up.
Whether new CEO Jonathan Akeroyd gets a chance to really put his stamp on the business remains to be seen. Call this wishful thinking but I believe there’s a good chance Burberry will be taken out by a deep-pocketed suitor if its shares continue to lose height.
Tempting valuation
A second FTSE 100 share that looks reasonably priced on paper is, well, paper and packaging firm Mondi (LSE: MNDI). Like Burberry, it’s seen its share price fall considerably in 2022.
Again, this isn’t unjustified. Mondi is pretty exposed to the awful events in Eastern Europe. The company has operated in Russia for decades and relies on the country for a not insignificant proportion of its revenue and earnings. The £7bn cap also runs a paper bag plant in Lviv, Ukraine. Factor in supply chain disruption and rising costs and a 20%+ fall in the shares is understandable. Indeed, some degree of diversification will definitely be required if I were to buy today.
Not dissimilar to rivals Smurfit Kappa and DS Smith, shares in Mondi currently trade at 10 times expected earnings. Sure, there are cheaper stocks lurking in the FTSE 100 but that’s not the point. The key question to ask is whether I’m getting a good deal relative to the quality of the business I’d be buying a stake in and the risks entailed. I think that’s the case here. None of these issues look to be permanent. The demand for packaging from online retailers? That’s here to stay.
So long as I can be patient, I’d be comfortable investing now. Perhaps buying in tranches may be the optimal approach.
