1 bargain FTSE 100 stock to buy right now

Our writer thinks this FTSE 100 stock, with a strong balance sheet and promising cash flows, can win against a background of inflation and low economic growth.

| 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.

sdf

In a falling market, I think that Howden Joinery Group (LSE:HWDN) is a bargain FTSE 100 stock that I’d like to add to my portfolio. The company’s share price has fallen by just over 30% since the beginning of the year and it’s reached a point where I’d consider it materially undervalued. 

Howden’s is a supplier of kitchens to the building trade. The company’s products include fittings, appliances, and joinery products. 

I think that Howden’s stock is a bargain at the moment. In order to see why, let’s look at why the share price has been falling and why I believe it’s undervalued at these levels.

Why has the Howden Joinery share price been falling?

In my view, the main reason that the Howden’s share price has been falling is the macroeconomic outlook. The outlook for economic growth in the UK is currently weak and inflation is high. Both of these are negative for a business like Howden’s.

Weak economic growth may well present a problem. If the economy struggles, consumers are more likely to delay or abandon plans to buy new kitchens, which would weigh on Howden’s revenues.

The macroeconomic outlook therefore appears to be a challenge for Howden’s. I think this is what’s been pushing the share price down since the start of the year.

Why is the stock a bargain?

While I think there are good reasons the Howden’s share price has been falling, I also believe that it has now fallen so far that it’s a bargain.

The current share price values the entire company at total of £3.85bn. The company also has around £76m in debt, which adds to the downside for an investor like me.

Last year, Howden’s generated £351.5m in free cash, which represents a return of around 9% per year. I think that’s extremely attractive. 

Obviously, the macroeconomic situation means that Howden’s future cash flows might well be lower than they were last year. So forecasting a 9% return every year is likely to be unrealistic.

Nonetheless, in buying this stock, I intend to hold it for a long time. I don’t think that the economic downturn will last forever and when the outlook improves, I think that Howden’s will perform well.

In the meantime, I anticipate the company’s strong balance sheet should see it through. Howden’s current assets more than cover its total liabilities, which I think means it can make it through a tough period.

After that, if the company averages 2% growth per year, the return from an investment perspective is in excess of 10% on average over the next decade.

Conclusion

Howden Joinery Group is a cyclical business – it is likely to perform better when economic conditions are favourable and worse when they are more difficult. I think that a difficult macroeconomic environment is presenting a temporary buying opportunity. I’m looking to take advantage in my own portfolio.

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.

Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Howden Joinery Group. 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

Number three written on white chat bubble on blue background
Investing Articles

Just released: the 3 best growth-focused stocks to consider buying in July [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Portrait of a boy with the map of the world painted on his face.
Investing Articles

Warren Buffett’s Berkshire Hathaway dumped this growth stock. Here’s why I won’t

Eyebrows were raised when Warren Buffett's company invested in this Latin American fintech disruptor a few years ago. But now…

Read more »

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

£15k to spend? 3 UK shares, investment trusts and ETFs to consider for a £1,185 second income

By harnessing a range of different dividend stocks, I'm confident this mini portfolio might pay a large long-term second income.

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Is Tesla stock about to crash?

Tesla stock was on the slide today, shedding around $80bn in market value. What's going on with the electric vehicle…

Read more »

Thoughtful man using his phone while riding on a train and looking through the window
Investing Articles

Should British investors consider buying Apple stock while it’s down 14% in 2025?

Apple stock has underperformed in 2025, falling more than 10%. Is this the buying opportunity UK investors have been waiting…

Read more »

Two business people sitting at cafe working on new project using laptop. Young businesswoman taking notes and businessman working on laptop computer.
US Stock

2 AI growth shares that I think are still undervalued

Jon Smith flags up two AI growth shares that aren't as overhyped as some peers, making them appealing for him…

Read more »

Thoughtful man using his phone while riding on a train and looking through the window
Investing Articles

Where is the next Nvidia stock right now?

Nvidia stock has delivered jaw-dropping gains. Here are 10 growth shares that have the potential to also produce big returns…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Could these FTSE 100 stocks explode in July?

Looking for FTSE stocks that could catch fire this month? Here are the share price prospects of two popular London…

Read more »