Falling FTSE 100 stocks: 1 to buy, 1 to avoid

With share prices falling, our writer is seizing his opportunity with a top-quality FTSE 100 stock. But he’s steering clear of another one.

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Key Points

  • Rightmove's share price has fallen 32% this year, with the shares now offering a 4.38% cash flow yield
  • Diageo shares are currently offering a 2.86% cash flow yield, having only fallen 8% since January

Fears of inflation, recession, and rising interest rates have been pushing down share prices this year. The FTSE 100 is down around 2% since the beginning of January (although up over 4% in a year).

Sometimes, falling share prices can provide investors with great opportunities. But the fact that a business is selling for less than it was before doesn’t automatically mean that it’s worth buying. 

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Two companies in the FTSE 100 have been catching my eye lately. Both have falling share prices. One of them I’d buy today, the other I’d stay away from. 

I’d buy Rightmove

I’ve had an eye on Rightmove (LSE:RMV) shares for some time now, but I’ve never been convinced by the price its stock was trading at. The share price has come down 32% since January though, and it’s now at a level where I’m comfortable buying.

At current prices, Rightmove shares value the entire business at £4.468bn. In exchange, an investor would get a company that’s generating around £195m in free cash each year, with just under £32m in net cash on its balance sheet.

From an investment perspective, that looks to me like I can expect a return of around 4.38% per year at today’s prices. When the share price was around 790p at the start of the year, the equation looked different to me. But at 530p per share, I’d buy shares for my portfolio.

There’s a real risk that Rightmove’s share price might be heading lower in the next few months or even years as the UK housing market comes under pressure. For me though, investing isn’t about buying shares when they’re at their lowest point, it’s about buying shares when I’m getting enough for my money in return. And at these prices, I think Rightmove is offering me enough for it to be worth buying shares for my portfolio.

I’d avoid Diageo

On the other side, I’m staying away from shares in Diageo (LSE:DGE). The share price is down around 8% since the beginning of the year, but I still don’t see that there’s enough value for me at current levels.

[Fool_stock_chart ticker=LSE:DGE]

Diageo’s current share price implies a total valuation for the company of just under £87bn. In return, an investor buying shares today would acquire a company with a further £12bn in debt generating £2.8bn in free cash per year.

From an investment perspective, that looks to me like a return of around 2.86% per year. Compared to Rightmove, that’s just not attractive to me. 

I think Diageo is a fantastic business. The company has some superb brands, which allow it to generate £4.2bn in operating income using £4.8bn in fixed assets. 

I’d love to own its shares. But even though the price has come down since January, Diageo shares just aren’t attractive enough to me from an investment perspective at current levels.


Both Rightmove and Diageo have seen significant declines in their share prices since the start of the year. But I think the decline in Rightmove’s price is a buying opportunity for me. Diageo? Not so much.

Where Rightmove’s shares has fallen to a level that implies a free cash flow yield over over 4%, Diageo’s stock is priced for a return of under 3%. So I’m putting my money into Rightmove.

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Stephen Wright has positions in Rightmove. The Motley Fool UK has recommended Diageo and Rightmove. 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.

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 considered, so you should consider taking independent financial advice.

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