Aside from the appalling human cost, the Iran war has created significant challenges for many top FTSE 100 shares. Rocketing energy costs, surging inflation, rising interest rates, and cooler economic growth could all scupper corporate earnings. No wonder the index has dropped 5.6% over the last month, then.
Yet the Footsie’s drop also throws up considerable opportunities. Looking at the bigger picture, a huge number of UK blue-chip shares still appear to be on course to deliver exceptional price gains and dividends over the long haul. Snapping them up today could supercharge returns when stock markets eventually recover.
Here are just two FTSE 100 stocks I think could rebound spectacularly from current price levels.
Building back stronger?
Housebuilders like Persimmon (LSE:PSN) could be among the biggest casualties if interest rates rise. With the UK economy locked in low-growth mode, buyer affordability could take a double-whammy.
Building society Nationwide has warned that “UK economic growth is likely to be slower and inflation higher than previously expected“, with the Iran war “clouding the outlook“. No wonder Persimmon’s share price is down 26% over the last month, then.
Yet longer term, market conditions are likely to remain highly favourable for sector earnings. The government estimates at least 300,000 new homes are needed every year to house the booming population. As the UK’s second-largest builder by volume, Persimmon’s well placed to capitalise on this.
In the meantime, Persimmon’s focus on affordable housing could support earnings as buyers trade down in a tough market.
With a price-to-book (P/B) ratio of 0.9, Persimmon shares offer compelling value at today’s prices. That’s below the value watermark of one. It’s also miles below the company’s 10-year average of 1.8.
Too cheap to miss?
Babcock International (LSE:BAB) shares have fallen a sizeable 15% over the past month. Against the backdrop of an escalating war, seeing a defence stock like this reverse might be puzzling to some.
Not to me. Sure, the Middle East conflict threatens to impact supply chains and push up energy costs. But this isn’t the chief reason the company (like industry rival BAE Systems) is reversing. To my mind, it reflects Babcock’s previous huge share price gains and investors now booking profits to raise cash and/or invest in bargains.
In my view, the long-term outlook for the FTSE 100 firm remains as compelling as ever. NATO nations should continue rapidly rearming as the geopolitical landscape becomes bumpier. And especially as the President Trump fumes over other NATO nations not entering the war, raising fresh doubts over US military security in Europe. In this landscape, I expect the defense share to bounce back from its recent fall.
Babcock’s share price drop leaves the firm on a forward price-to-earnings (P/E) ratio of 18.5 times. So, once again, it looks like one of Europe’s best value defence shares — the broader P/E here remains high at 30-31. Like Persimmon, I think it’s a top FTSE 100 dip buy to consider.
