It’s not unusual for FTSE 100 shares to jump 20% up or down in a 52-week period. As such, catching a share at a low point can be a simple way of making big market returns.
The opposite, buying a stock at a high point, can be extremely costly. Warren Buffett said, “a too-high purchase price for the stock of an excellent company can undo the effects of a subsequent decade of favorable business developments”.
With this in mind, let’s look at three FTSE 100 shares – all at their lowest price in the last 12 months – and one that I’ll be rushing to buy before it’s too late.
Before I dive into the three fallen Footsie stocks, I will point out the danger of focusing on deflated share prices. While finding a cheap entry point can be highly profitable, not every stock at a 52-week low is a shrewd purchase. Some stocks are simply on their way down.
Fallen angels
A good rule of thumb when looking at battered share prices: just because a stock has fallen, doesn’t mean there isn’t further to drop. My strategy here is to catch a fallen angel, not a falling knife.
So when looking at shares near these 52-week lows, it’s important to look for the reason why they’re low. This can help me work out if the share price is likely to rebound.
Will that happen to my first stock, Entain? It’s a sports betting and gambling firm that owns Ladbrokes, Coral, and PartyPoker, among other names.
The share price fell to 918p this year from a 52-week high of 1,587p. A drop of 42% places it among the worst-performing FTSE 100 stocks over the last few months.
While that looks like a big discount, I won’t be buying. The firm is facing serious regulatory headwinds as the government reforms the 2005 Gambling Act. The legislation is expected to reduce predatory behaviours against problem gamblers and lead to reduced revenues. That’s enough to put me off.
Cigarette seller Imperial Brands faces a similar struggle. It sells a product well known to kill people.
Its 1,667p share price just reached a 52-week low, down about 24% from a high of 2,184p earlier in the year.
The stock dropped 6% last week after Rishi Sunak announced his plan to ban cigarettes for anyone born in 2009 or later. This kind of rising age limit would slash revenues in this country.
Buy or avoid
Again, this is too much risk for me, even though the dividend does look spectacular.
A firm I’m more bullish on is Guinness and Johnnie Walker manufacturer Diageo.
The drinks maker has watched its stock slide for months and its 3,080p share price is down 20% from its 52-week high.
One reason why investors are uncertain is the tragic and unexpected loss of its CEO Ivan Menezes. He died in April and the shares have been on a downwards trajectory since.
But this is a great company with great products. It even boasts a dividend that has grown for 25 years in a row. The shares might just be running at a discount.
I’ve held off on buying before but, at this 52-week low, the value looks too good. I’ll buy in the next time I have cash to invest.
