No one truly knows where markets are going in the near term. However, I’m increasingly hopeful that we’ll see a stellar recovery in 2024 as interest rates potentially moderate and economic sentiment improves. That’s why I’m on the hunt for value stocks to buy in the last quarter of 2023.
Beaten, not broken
One example that catches my eye is FTSE 100 medical tech company Smith & Nephew (LSE: SN).
Now, it’s fair to say that investors have been avoiding this stock for a while and I can see why. Huge backlogs on elective surgery thanks to the pandemic have seriously impacted earnings.
More recently, the market seems to be concerned by the arrival of new weight loss drugs and how these might reduce the need for its products. This helps to explain why the share price has now resumed its downward trajectory despite a brief rally in the first half of 2023.
However, a price-to-earnings (P/E) ratio of 12 just feels a bit low considering many countries have ageing populations. Moreover, Smith & Nephew’s portfolio encompasses orthopaedics, sports medicine, ENT and advanced wound management. This is no one-trick pony.
So, while it may take a while longer for the bulls to return, I do think a strong recovery is on the cards.
While never guaranteed, the 3.5% forecast dividend yield is decent compensation in the meantime.
Cheap income steam
As I type, shares in the FTSE 250 member Investec (LSE: INVP) are down 12% in 2023. That feels a bit harsh considering its most recent trading statement.
For the six months ending 30 September 2023, the dual-listed bank expects adjusted operating profit of between £428.7m and £449.6m. That would be a decent rise on the £405m generated in the same period in 2022 and “driven by continued client acquisition, positive effects from higher global interest rates and year-on-year growth in average lending books“.
I think this makes the valuation — at a little less than seven times forecast earnings — look pretty compelling. The case is further boosted by a monster 7% yield that’s set to be safely covered by profit.
Naturally, it pays to remain cautious. South Africa — where the company was founded — isn’t the most politically stable of countries and corruption is rife.
Accordingly, I’d make sure I was already sufficiently diversified away from the financial sector if I were to buy Investec shares today.
A final value stock I like is one I’ve actually been accumulating throughout 2023: housebuilder Persimmon (LSE: PSN).
Since precise timing in investing is impossible, I’m not surprised that my position is currently underwater. However, I’m staying put for several reasons.
First, we already know that higher interest rates have reduced demand and house prices have fallen. I reckon at least some of this is factored into Persimmon’s price-to-book value of just over one.
Second, the sector is in far better financial shape than it was during the property crash of 2007. This gives me confidence most members will ride out the storm without issue.
Third, the company continues to pay dividends (albeit reduced). A forecast 5.5% yield is more than I’d get from a FTSE 100 tracker.
The question of whether to add to ‘losing’ positions will always divide investors but I’d be willing to top up my holding here.