When looking for shares to buy, it can sometimes pay to take a closer look at those whose prices have plummeted lately. Twitchy investors often overreact to bad news. That could provide an opportunity for a patient long-term investor to find a bargain.
On the FTSE 350, there are two stocks that have seen their market caps drop by 54% since October 2024 and another that’s down 30%+.
Getting their sums wrong
I’ll dismiss one of the bigger fallers first. In August, WH Smith discovered it’s been recognising supplier rebates in its US accounts too early. An investigation is under way to identify how long this has been going on. Until the position becomes clearer, I don’t want to invest.
Now for one I do find interesting. Investors could take comfort from another FTSE 250 company that appears to have weathered the storm after uncovering similar problems.
A year ago, Vistry Group (LSE:VTY) revealed it was underestimating (by around 10%) the full-life cost projections for a small number of its developments. And in a double whammy, it then discovered it had underestimated the impact. Things now look to be on an even keel. Investor confidence appears to be returning with the housebuilder’s share price rising nearly 10% since 10 September (but down nearly 33% in a year).
The group specialises in building low-cost homes in partnership with local authorities/housing associations. The government has allocated £2bn of funding for the sector under the Affordable Homes Programme. Work will start in March 2027 and is due to be completed by June 2029. Vistry should be in a position to secure a significant chunk of this new money.
Because of its business model, it doesn’t necessarily require a healthy housing market to prosper. Although some of its properties are sold to private buyers, the majority are paid for by the public and ‘third sectors’ (non-profit organisations). It’s therefore less reliant on mortgage availability and lower interest rates to boost buyer confidence.
The group’s share price appears to be slowly recovering. In my opinion – assuming it’s sorted out its spreadsheets – now could be a good time to consider the stock.
Big question marks
WPP‘s (LSE:WPP) share price has more than halved over the past 12 months after experiencing a drop in revenue. It recently cut its interim dividend by 50% as a precaution. Although it’s too early to know for definite, there’s a strong suspicion that the rise of artificial intelligence (AI) is enabling companies and individuals to create more advertising and marketing campaigns themselves.
But the group has a global reach and an impressive client list. And it’s come through downturns before. The industry is notoriously cyclical as spending in this market is seen as discretionary and is one of the first things to be cut in difficult times. The current mini slump could be another blip.
However, Sam Altman, boss of OpenAI, was recently quoted saying that “95% of what marketers use agencies, strategists, and creative professionals for today will easily, nearly instantly, and at almost no cost be handled by AI“. Of course, he has an interest in promoting the technology. But even if he’s only partly right, the implications for WPP could be huge. With such a threat hanging over it, I don’t want to invest.
