Investing in out-of-favour FTSE 100 value stocks before they recover can deliver massive returns for investors. The best recent example is Rolls-Royce. Somebody who bought that before it fought back to form will have made a fortune.
Shares in the engineering giant have rocketed 1,208% in five years. That would have turned £10,000 into a staggering £130,800. Are there similar recovery opportunities out there today?
Despite a strong 2025, the FTSE 100 is packed with value stocks. The key is to get in before they take off, rather than afterwards. So do these two fit the bill?
Bunzl is starting to recover
I personally bought distribution and services group Bunzl (LSE: BNZL) last summer after the shares plunged due to slowing earnings in the US. It looked like a rare opportunity to back this solid company at a reduced price.
Before the sell-off, Bunzl had grown steadily for years, driven by an aggressive acquisition strategy. It also has a fabulous dividend track record, hiking shareholder payouts every year for more than three decades. Yet the shares are now down 37% over 12 months, reducing the price-to-earnings (P/E) ratio to a modest 11.1.
The shares are trading near a 10-year low but showing signs of stabilising, in fact, they’re up 5% in the last week. I’m hoping this is the start of the recovery. We’ll see.
Bunzl expects full-year revenues to grow up to 3% at constant exchange rates, but be broadly flat at actual ones. What it really needs is a brighter US economy, and maybe a stronger dollar, as that boosts revenues in sterling terms.
The trailing yield has climbed to 3.44%, with a chance of share price growth on top. I think it’s worth considering for this year’s Stocks and Shares ISA, but with a long-term view.
Croda shares are climbing too
I’ve been watching Croda International (LSE: CRDA) like a hawk. It makes speciality chemicals used in beauty, agriculture, and life sciences, and sales flew during the pandemic as customers stockpiled materials. As the panic eased, sales slumped. Customers had what they needed in stock. The Croda share price followed.
My view is this. At some point, customers had to work through their pandemic piles, and when they did, Croda would be in clover. The shares are still down 55% over five years, and 7.3% over 12 months. But like Bunzl, Croda jumped around 5% last week.
Croda also has a brilliant dividend track record, hiking shareholder payouts for each of the last 30 years. Thanks to the falling share price, the trailing yield has crept up to 3.8%.
The key to buying a recovery stock is to get in before they take off, as the first upwards bump is often the biggest. The shares are trading around a 10-year low. Croda is slightly more expensive than Bunzl on a P/E of just over 20. It also needs a more vibrant global economy and its absence remains a risk. But I can sense something stirring here and think it’s finally worth considering.
I don’t expect either to do a Rolls-Royce. I see them more as slow burners. Delivering dividends and growth over time, and building long-term wealth through compounding. It may help that both are now starting from a much lower base.
