The FTSE 100 has fallen back from its 52-week high hit during May. But some members of the index — Barclays (LSE: BARC), Kingfisher (LSE: KGF) and Diploma (LSE: DPLM) — are faring better.
Since we’ve been drilled to ‘buy low and sell high’, would it be madness to snap up any of these shares now?
Still dirt cheap
Having climbed almost 50% in value, Barclays is having a stonking 2024 so far. Investors have clearly warmed to the bank’s strategy of cutting costs, selling assets and reorganising its business divisions.
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As good as all this is, however, it will be interesting to see how holders react when interest rates are finally cut and margins at Barclay’s retail banking division are reduced.
Then again, I reckon the Bank of England will probably remain cautious going forward. And despite recent momentum, the shares still trade at a price-to-book (P/B) ratio of just 0.5. This is lower than FTSE 100 rival Lloyds (0.8).
Barclays also seems to be attractive from a passive income perspective. Analysts have it returning 8.54p per share to investors in FY24. That becomes a dividend yield of 3.7% at the current price.
If I were looking for cheap income stocks today, Barclays would at least make my shortlist.
A favourite with shorters
Considering home improvement projects can always be postponed, I’m surprised to see that shares in Kingfisher are up 14% year-to-date. Perhaps this is an indication that investors think better economic times lie ahead?
Trading-wise, the B&Q owner seems to be keeping its head above water. Q1 earnings were in line with expectations despite ‘big ticket’ sales being weak. Outside of the UK, “encouraging sales trends” were seen in Poland but trading in France was still pretty poor. A mixed bag then.
To be fair, this seems to be factored into the valuation. A price-to-earnings (P/E) ratio of just over 13 doesn’t feel excessive, at least relative to other UK stocks.
On the other hand, Kingfisher remains popular with short sellers — traders betting that a company’s share price will fall. In fact, it’s the fourth-‘most-hated’ share on the market!
Short sellers can be wrong. But since their losses are technically infinite (they lose money if the share price rises), I’m still very wary of getting involved here.
All priced in?
International value-add distribution company Diploma has also been flying — up 22% in 2024.
From above-average margins to solid returns on capital, there’s a lot I like about this supplier of specialised technical products and services. It’s also been a massive winner for investors over the long term.
The issue here for me is the valuation. At 30 times forecast earnings, Diploma stock is undeniably pricey.
This is not to say that the shares can’t keep rising. Momentum is a powerful force in investing. But it does feel like a lot of good news might be baked in and any significant wobbles in trading could hammer sentiment.
Tellingly, there’s been a muted reaction to today’s (18 July) nine-month update. This is despite a “strong Q3 performance” and no changes being made to its full-year outlook.
I’ll keep Diploma on my watchlist for now. Perhaps this might be one to grab during a period of market volatility.
