UK stocks have had a bumpy ride lately. They snapped back hard on Wednesday (8 April) after Donald Trump announced a 14-day ceasefire in Iran, but there could be plenty more volatility to come. Should investors take advantage?
Many investors would have expected the FTSE 100 to have done a lot worse. I’m one of them. It peaked at 10,910 just before the war started on February 28. On Friday, it traded around 10,610, just 2.75% lower. It doesn’t look like a once-in-a-decade buying opportunity. Closer inspection reveals otherwise.
Investors are quick to shrug off geopolitical shocks these days. There are several possible explanations. The US is less dependent on Middle Eastern oil than it was. There are hopes the conflict will be contained. After the pandemic, Ukraine, the cost-of-living squeeze and tariffs, investors have learnt that panic selling rarely pays. Buying the dips does. Of course, the resilient mood could swiftly change if events escalate.
Cheap shares abound
However, a heap of stocks have been hit a lot harder than the index as a whole. Housebuilders Persimmon, Berkeley Group Holdings and Barratt Redrow all plunged roughly 25% as higher borrowing costs, weaker demand and rising costs spooked investors. They’ve rebounded in recent days but still sit near 10-year lows. The sector is likely to remain volatile for some time, but the sell-off looks excessive to me.
The Reckitt Benckiser (LSE: RKT) share price is also a lot lower than it was a decade ago. Its 2017 acquisition of Mead Johnson Nutrition backfired amid a blizzard of lawsuits over its premature baby formula. Supply chain disruption, inflation and slower demand in developed markets added to the strain. In 2024, one of its warehouses was destroyed by a tornado.
Reckitt shares can rebound
Yet on 5 March, the Dettol, Nurofen and Durex owner reported a 5% rise in full-year revenues to £14.2bn, driven by emerging markets. Adjusted pre-tax profits climbed 5.2% to £3.32bn. The shares look stunningly cheap to me. Its price-to-earnings ratio has collapsed to below 0.6, having been above 20 not so long ago. The trailing dividend yield sits at 4.2%, well above historic norms.
It still faces challenges, amid weak European demand and fading enthusiasm for consumer staples. The Iran war and oil price spike could drive up costs and hit demand. Yes I think Reckitt is well worth considering with a long-term view.
Long-term recovery plays
Shares in telecoms giant Vodafone are up 85% over the last year but still trade below levels seen a decade ago. Legal & General is also near a 10-year low but offers the highest trailing dividend yield on the FTSE 100 at 8.4%. Spirits giant Diageo is also temptingly cheap. Patience is required though.
Autotrader, Bunzl, Croda, Entain, Intertek and Rightmove are also back around 2016 levels. I’m not saying they’re all ripe for a recovery. Turning round an ailing company takes time. It might never happen. Buy I can see bags of opportunity in today’s market. If volatility returns in the days ahead, there may be even more.
