It’s been a tough year for FTSE 100 shares, though some have been hammered harder than others. The three I’m looking at here have all seen their share prices fall more than 35% so far in 2022. Does that make them buys now?
Housing
Barratt Developments (LSE: BDEV) shares have fallen 45% since the start of 2022.
I could have picked any of the UK housebuilders really, as they’ve all suffered a collapse in 2022. It’s all about recession, rising interest rates, expensive mortgages, and a slowing property market.
For anyone thinking of buying Barratt shares today, I’d say it’s all about short-term pain versus long-term gain. And I can see both sides.
I think house sales are likely to decline in 2023. And I expect housebuilder share prices to remain depressed while sentiment is so negative. In fact, forecasts suggest Barratt’s earnings will fall.
But the dip has lowered the stock’s forecast price-to-earnings (P/E) multiple to around six. And the predicted dividend yield is up to 9%. Investors who believe there’s long-term growth in the housebuilding business might see that as undervaluation.
Stock market
When the stock market is bearish, companies providing market services tend to suffer. That’s certainly true for Hargreaves Lansdown (LSE: HL.), whose shares are down 35% in 2022.
I think investors have valued the stock too highly in the past. Back in 2018, the P/E stood at around 40. And even if the apparent anticipation of earnings growth was justified, I reckon that was way too steep.
The company has been generating strong cash flow. But the high share price sill kept the dividend yield down around 2%.
Thanks to the share price fall however, we’re now looking at a forecast dividend yield rising above 5% for 2023-24, with a P/E heading down around 15.
To me that makes the stock a much more attractive proposition, though I have a couple of concerns. One is that these forecasts might be a bit optimistic as we head into perhaps a couple of years of recession.
The other is that barriers to entry in the business are not huge, and low-price competition is growing.
Investment trust
My final choice is purely a play on the Nasdaq falls of 2022. Scottish Mortgage Investment Trust (LSE: SMT) invests in a lot of growth stocks, mostly listed on the US tech stock index. As the Nasdaq has fallen, the Scottish Mortgage share price has dipped more than 40% so far in 2022.
I do think we’ve seen a justified valuation shift in stocks like Moderna and Tesla. We’d been in a growth stock bubble for years, and investors were piling in without heed for fundamental valuations.
The big question now is whether these stocks are oversold. If they are, the index could be a cheap buy going in to 2023. And Scottish Mortgage, on a discount of 7%, could be a profitable investment.
The main downside I see is that the bearish outlook on tech stocks could last some time yet. And the shares might well have further to fall before there’s any hoped-for recovery.
