When buying stocks for my portfolio, I pay special attention to beaten-down, out-of-favour companies. Although with this strategy I might sometimes buy legitimate lemons, I can also occasionally find bargains.
With that in mind, I believe the following two stocks have reached oversold territory. I would buy both of them if I had spare cash, as I think the odds are in favour of a recovery.
Land ahoy!
British Land (LSE:LAND) is a diversified real estate investment trust (REIT) holding a range of properties, including retail, offices, residential, and campus-style developments.
The share price has dropped by 17% over the past 12 months. That is partly due to interest rate rises weighing on real estate values.
Furthermore, retail is a significant part of British Land’s portfolio, constituting roughly 30% by value. The Organisation for Economic Co-operation and Development reported in October 2022 that consumer confidence in the UK is lower than in most developed economies. Penny-pinching shoppers will impact retailers, having a knock-on impact to the rents that British Land can expect to charge.
Despite the dark clouds, I think British Land’s share price presents a good entry point for me. In its half-year report released on 16 November, British Land’s net tangible asset value was 695p a share. With the REIT’s shares trading at 409p a share, that’s a 41.1% discount to net asset value – a significant margin of safety.
In short, British Land’s correction looks overdone at these levels. The REIT offers a high dividend yield of 5.7%, and a management team that targets value accretive acquisitions (creating development opportunities instead of just sitting idly on its properties).
Home, sweet home
I would buy Persimmon (LSE:PSN) stock at its current price. Despite a 41% fall in the last 12 months, I believe this UK housebuilder is a long-term winner.
Yes, housebuilding is a boom-and-bust business, and the sector is in the doldrums right now. Persimmon recently advised that the outlook for 2023 was so uncertain that it was unable to provide a profit forecast for the year. It also slashed its dividend by a whopping 75%.
Additionally, while previous industry slowdowns have seen government intervention, there’s currently no such support. Instead, the government has actually introduced a new 4% tax on housebuilder profits to remedy unsafe cladding. And a recent probe by the UK’s Competition and Markets Authority (CMA) is adding uncertainty.
But I believe all of this bad news has been priced in, and I see an opportunity to buy now and wait for brighter times to come.
Ultimately, the UK needs more homes and Persimmon is well-placed to deliver them. As the largest housebuilder in the country, it has a strong balance sheet, with net cash of £850.7m at the end of 2022. I think if I can weather the short-term challenges I should be well-rewarded in the long run.
Darkest before the dawn
Although volatility can make looking at my brokerage account a stressful experience, I believe it is my friend as an investor. When the stock prices of high-quality companies halve in the space of a year, that can sometimes signal an opportunity to buy assets below their true value. That’s why I’m always on the look out for depressed stocks that could be due a bounce back!
