One technique I often use to find potential investment bargains is to screen the market for shares trading close to their 52-week lows. Today, I’m looking at the FTSE 100. Does the big-cap index have any bargains to offer after this year’s rally?
My screening identified five shares trading within 10% of their one-year lows. I’ve chosen two of these stocks to write about today, because I think they could both be profitable long-term buys at current levels.
Are Persimmon shares too cheap?
Housebuilder Persimmon (LSE: PSN) got dumped by investors last week, after the company warned that new home completions and profits will be down this year.
However, this news was not really much of a surprise. All that the share price slump has done has to unwind the rally we’ve seen since the start of the year.
Housebuilders’ profits go up and down with market conditions. We’re now on a down leg. Higher interest rates are pushing up mortgage costs, putting pressure on prices and slowing sales.
However, this is a cyclical business and history suggests the market will stabilise and recover eventually.
The risk for investors now is that it’s too soon to get involved. The economy could take a turn for the worse and house prices could fall further than expected. That’s possible, but my experience is that cyclical stocks always look riskiest when they’re close to the bottom of the cycle.
Persimmon is now trading close to its book value of 1,077p per share. More than 20% of this amount was held in cash at the end of 2022, with the remainder in property. The business looks quite safe to me, even if conditions do worsen for a while.
Broker forecasts price the stock on 10 times forecast earnings, with an expected dividend yield of 6%. To me, this looks like a solid contrarian buy.
Hargreaves Lansdown could be cheap
Hargreaves Lansdown (LSE: HL) is the UK’s largest retail investor platform, but it’s going through a difficult patch. The share price is down by nearly 20% this year and by more than 60% from its 2019 peak.
Meanwhile, founder Peter Hargreaves has been openly critical of CEO Chris Hill’s strategy of investing in robo-advice and other tech projects.
I’m not convinced either. I think that Hargreaves should probably focus on its core business of share dealing and fund sales first.
This group is still a dominant player in the UK, with a market share of more than 40%. Customer assets under administration were worth £127bn at the end of last year.
However, competition from rivals such as Interactive Investor and AJ Bell is getting tougher. My guess is that Hargreaves will come under pressure this year to trim its fees and offer better interest rates to customers holding cash.
These factors could see Hargreaves’ profits fall. Broker forecasts suggest earnings won’t bottom out until next year.
Timing the bottom on a stock is almost impossible. But Hargreaves shares are now trading at 10-year lows, with a forecast price-to-earnings ratio of just 13. That’s well below historic norms — and there’s also a 5% dividend yield.
I think this could be a good time to start building a long-term position in this market-leading business.
