August has been volatile for the stock market, to say the least. But with market volatility comes great buying opportunities. That’s why I’m on the lookout for additions to my Stocks and Shares ISA.
Whether or not we endure a crash or correction, I’m not fussed. I’ll patiently wait on the sidelines to jump in and snap up bargains. Fears of a recession rumble on in the US. But that suits long-term investors like me.
Here are two stocks I’m eyeing like a hawk.
Lloyds
The first is Lloyds (LSE: LLOY). After a strong July, August hasn’t been quite as kind to the stock so far. Its share price has moved up and down. As I write, it sits at 57p.
I think that looks like good value for money for a few reasons. Let me explain why.
First, it means the stock is now trading on just 8.1 times trailing earnings. Granted, all UK banks look like good value for money at the moment. But Lloyds is still below the FTSE 100 average. On top of that, it’s trading on 8.6 times forward earnings.
There’s also its 5.1% dividend yield comfortably covered nearly three times by earnings. And all dividends I received investing through my ISA would be tax-free.
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Rising dividend
Not only that, but its payout has been trending upwards. Last year it jumped 15% to 2.76p per share. Analysts are forecasting more growth over the next couple of years.
I see a few issues with Lloyds though. The main one is falling interest rates. As rates are cut further, this will impact its net interest margin (NIM). Its NIM fell in the second quarter from 2.95% to 2.93%.
But with its share price dipping, I think now could be a smart time to buy some shares. If I had the cash, that’s what I’d be doing.
Burberry
Recent market volatility has also impacted Burberry (LSE: BRBY). In all fairness, its share price was already sliding before the turmoil we’ve seen in August. It’s now down 50.6% year to date. That said, it’s fallen a further 10.5% in the last five days.
The stock is the cheapest it’s been since 2010. Today, it trades on just 9.4 times earnings. That’s significantly lower than its long-term historical average of over 22. Does that mean Burberry is now deep in bargain territory?
Potentially. Its price-to-sales ratio is also just 0.8. On paper, that screams bargain.
The stock has fallen dramatically for a reason. Multiple profit warnings in recent months have investors worried. Burberry now expects to post an operating loss in its first half. That comes on the back of sales continuing to fall in China. For the first quarter, store sales were down 21%.
A slow turnaround
But I reckon Burberry could bounce back, although it won’t be a quick turnaround. However, I think the business has a couple of things in its favour.
First, more rate cuts in the coming months should boost spending. Furthermore, while it has struggled in Asia, the region remains a long-term hotspot for exciting growth opportunities as wealth continues to expand.
As such, Burberry is a stock I’d buy today if I had the cash.
