I’m a contrarian investor, which means that I prefer to go against the herd. Hence, one thing in the investing world that gets me excited is spotting a decent FTSE 100 firm’s shares tumbling.
Like my hero Warren Buffett, my goal is to “be fearful when others are greedy, and greedy when others are fearful”. And right now, I’m greedy to buy the stock of one particular Footsie ‘fallen angel’.
One FTSE 100 faller
The company that’s drawn my attention as its share price plunges is mining firm Anglo American (LSE: AAL). I’ve written about Anglo several times in recent weeks, after spotting its share price crashing from its early-2023 highs.
At their 52-week high on 18 January, Anglo’s shares peaked at 3,699p. They then set off on a relentless downwards dive, hitting rock-bottom at 2,223.5p on 31 May. From peak to trough, they crashed by almost two-fifths (-39.9%). Yikes.
Then again, there was good reason for this price slump. Falling global demand for base metals (especially in China) has sent commodity prices sliding in 2023. Given that this downturn will hit miners’ earnings, it’s no surprise that Anglo’s stock has suffered.
At the current share price of 2,594p, Anglo is valued at £34.9bn, making it a fairly big FTSE 100 player. Here’s how this FTSE 100 share has performed over various periods:
| One day | +4.5% |
| Five days | +5.6% |
| One month | +9.0% |
| Year to date | -19.8% |
| Six months | -17.2% |
| One year | -24.9% |
| Five years | +51.7% |
This stock is down nearly a fifth this calendar year and has lost almost a quarter of its value in the past 12 months. However, it has leapt by more than half over five years, thrashing the Footsie’s comparable return of -0.4%.
Note that the above figures exclude cash dividends. These can be substantial from established mining companies, with Anglo being no exception. Which leads me onto the exciting part…
This stock looks too cheap to me
Recently, I’ve been kicking myself for not buying this bombed-out stock. The only reason I’m not already an Anglo shareholder is lack of current funds.
Even after bouncing back a sixth (+16.7%) from its 2023 low, this share looks undervalued to me. It trades on a price-to-earnings ratio of 8.9, for an earnings yield of 11.2%. That’s a considerable discount to the wider FTSE 100.
Also, Anglo’s dividend yield of 6.3% a year is well above the Footsie’s yearly cash yield of 3.7%. Moreover, this payout is covered 1.8 times by earnings, which offers a reasonable margin of safety.
As a result of falling commodity prices, I fully expect 2023 to be much tougher for Anglo than 2022. Indeed, I predict its annual revenues, profit margins, and earnings will all fall.
These fundamentals look very attractive to me, despite the concerns I noted above. Therefore, I intend to buy this FTSE 100 stock as soon as I can. This should happen within weeks, as my wife and I are awaiting a tax-free lump sum next month!
