The FTSE 100 has performed surprisingly well over the last year, gaining nearly 5% in 12 months.
However, not all of the companies in the FTSE have benefited from this strong support. Today I want to look at three unloved companies I think could be bargain buys at current levels.
#1: DS Smith promises 6% yield
Shares in packaging group DS Smith (LSE: SMDS) have fallen by 40% over the last year as investors have priced in the risk of higher costs and a slowdown in demand.
However, CEO Miles Roberts recently said that trading since May has been in line with broker forecasts, despite rising raw material costs and higher gas prices.
According to Roberts, the company has been able to pass on most increases by raising its packaging prices. Hedging arrangements have also helped to limit the impact of high energy costs.
Roberts says that he remains confident in the outlook for this year and expects “a significant improvement in performance”.
Broker forecasts currently price DS Smith shares on just eight times forecast earnings, with a 6% dividend yield. Although falling demand is a risk, I think this could be a good time to buy.
#2: Berkeley should be a long-term winner
My next pick is upmarket housebuilder Berkeley Group (LSE: BKG). This business has an impressive record of timing market cycles successfully, so I tend to pay attention to its trading reports.
In its latest update, Berkeley said sales were running ahead of the same period last year. Strong demand for the firm’s new homes — which sold for an average of £600k last year — has allowed the company to raise its selling prices to cover higher costs.
Berkeley’s pre-tax profit is expected to hit £600m in 2022/23. This should continue to support the company’s policy of returning £282m to shareholders each year through share buybacks and dividends. That’s equivalent to a 7% return at the current share price.
The big risk here is that the UK housing market will suffer a more serious downturn than expected. If housing transactions slow right down, then Berkeley’s profits could slump.
Personally, I’m comfortable with this risk. I think this FTSE 100 share offers good value at current levels.
#3: ABF’s household names look safe to me
My final pick is family-controlled food and fashion group Associated British Foods (LSE: ABF).
This unusual business owns the Primark fast-fashion chain, as well as a wide range of food businesses. Popular ABF grocery brands include Twinings, Silver Spoon, and Blue Dragon.
Food sales are performing well this year, with profits ahead of expectations.
However, profits from Primark are expected to be lower, despite a recovery in sales. High energy costs and the strong dollar are causing costs to rise. Rather than hike prices, ABF has opted to accept lower profit margins in order to protect its market share.
This news caused ABF’s share price to fall to a 10-year low. However, my feeling is that this is probably a buying opportunity.
ABF has plenty of cash and can afford a short-term hit to profits. With the stock trading on just 10 times forecast earnings, I see this FTSE 100 share as a long-term buy.
