The FTSE 100 has suffered a bumpy start to the year, with the index down 3.36% so far in 2024. Last week was particularly painful, as Wednesday’s (17 January) inflation jump from 3.9% to 4% dented hopes of an early interest rate cut.
Two growth stocks took a serious beating but look a lot cheaper as a result. Should I take this chance to buy them at a discount?
Last week’s biggest loser was online grocery fulfilment specialist Ocado Group (LSE: OCDO). I’ve been toying with buying it for some time, and with the share price down 16.54% in a week, now could be my moment.
Buying bargain shares
For a while, Ocado was the go-to stock for investors seeking quick fire share price growth, but its struggles to bank a profit have rubbed off much of the gloss. Its pre-tax loss actually widened in 2022, from £176.9m to £500m.
It’s a problem for many growth stocks today, as rising interest rates drive up borrowing costs while inflation erodes the real terms value of future earnings. The Ocado share price is down 22.01% over one year and 78.6% over three. There’s a lot of investor pain priced into that.
Earnings have picked up at Ocado Retail, boosted by a resurgent Marks & Spencer Group. The Ocado Solutions business recently agreed its first non-food automated distribution deal, which opens up a whole new market. It has also developed the Zoom quick delivery proposition, but faces tough rivals such as Instacart, Deliveroo, and Uber.
Earnings are rising but the group isn’t expected to break even until 2026. It will be a bumpy ride before then. However, Ocado shares tend to fly when investor sentiment bounces. I’m seriously considering buying it while the mood is temporarily downbeat.
Luxury fashion brand Burberry Group (LSE: BRBY) was last week’s second biggest FTSE 100 faller, down 9.41%. This is another stock I’ve wanted to buy for years, but was deterred by its high valuation, which was usually around 24 times earnings.
Posh stock, cheap valuation
I’m glad I held back, because the stock has had a rotten run and not just last week. It’s down 46.48% over one year, one of the very worst performers on London’s blue-chip index.
Burberry has been punished for last November’s profit warning, as the global slowdown in luxury demand hit sales. Its 2024 operating profit is heading towards the lower end of the previously expected range of £552m to £668m.
Fashion brands sell a dream but now the share price is trading at realistic levels. Burberry looks nicely valued, trading at just 9.9 times earnings. There’s even a halfway decent income stream on offer, with a forecast yield of 4.5%, covered 1.8 times.
This looks like another stock that will benefit when inflation and interest rates drop, which could be in the spring or early summer. I’d like to buy Burberry’s shares before then, if I can muster the cash. It’s not possible to buy everything I want, but for the first time in years, I’m seriously tempted to buy it before the market wakes up to the opportunity.
