Are there bargains on the FTSE 100 currently? Almost certainly. The ever-present nature of underpriced shares is exemplified in perhaps the most famous of investing catchphrases – ‘buy low, sell high’.
Finding those bargains, on the other hand, is a difficult task. That’s because the best opportunities often come at times of maximum pessimism. How many were banging the drum for Rolls-Royce shares while Prime Minister Elizabeth was enacting ‘Trussonomics’? Those who did could have walked away with a 20 times return.
Where might such bargains be hiding today? One place to look is at stocks trading at 10-year lows. A share price at its lowest point since 2016 doesn’t guarantee a once-in-a-decade opportunity, but you never know…
According to the latest data (as of 21 January), the FTSE 100 is holding four stocks that are trading at or very close to a 10-year low.
Bargain basement?
Before getting into what I believe to be the most interesting of these four stocks, I’ll rattle off what’s going on with the other three.
Diageo shares won’t come as a wild surprise to anyone who has been following changing drinking habits. Drinks-makers across the planet are building up huge stock reserves as people are drinking less.
Diageo has fallen to a price-to-earnings ratio of just 12. There could be a lot of value on offer here if lower alcohol consumption is a temporary phenomenon.
Barratt Redrow shares (formerly Barratt before the merger) are looking cheap too, down at 384p. The ongoing demand for houses in the UK should help the housebuilder over the long term.
The risks here are manifold, however. Margins are decreasing from both sides with issues plaguing the housebuilding sector, including higher wages and supply costs, and also falling house prices.
Croda shares have seen one of the most staggering declines in recent years. The share price in the chemicals company has fallen by 73% since 2022. The firm is at risk of being booted out of the FTSE 100. That could signal an opportunity if the company can overcome increasing regulations and pressure on its margins.
Looking good
If asked to pick which of the four possible once-in-a-decade stocks I think is worth considering, I’d plump for Mondi (LSE: MND) shares. The packaging and paper company has seen something of a slowdown since the pandemic.
One important factor is the global economy. In good economic times, folk order more stuff through the post and businesses make more deliveries too. If a recession comes along in the next few years, this would be a risk.
But the overall trajectory of packaging solutions looks good to me. The rise of online shopping and the slow death of high streets seems to be an inexorable process. If so, then Mondi shares – trading at just 12 times forward earnings – could prove to be a bit of a bargain sooner or later. I’d say this one is a stock to consider.
