I love buying cheap shares, but I don’t like them to stay cheap for long. Once I’ve bought them, I want to see them become reassuringly expensive. Unfortunately, the opposite has happened with these three UK stocks. They just keep getting cheaper. Is that about to change?
I added all three to my SIPP in 2023. They’ve been a disaster for my portfolio, each falling a third on my watch. And that’s despite me averaging down on bad news. There’s been plenty of it.
When will Taylor Wimpey shares recover?
The first flop is FTSE 250-listed house builder Taylor Wimpey (LSE: TW) – although it was in the FTSE 100 when I bought it. The shares are down 33% over the last year, and 55% over five. It now trades on a low forward price-to-earnings (P/E) ratio of just over 11. The forward yield is a mind-boggling 11.9%, but don’t be fooled. The dividend is being cut so investors can expect around 7.5%. Which still isn’t bad.
Taylor Wimpey has been hit by affordability issues, the cladding scandal, rising cost of labour and materials, the end of the Help to Buy scheme. Today, there’s the threat of rising inflation and interest rates. So can it turn that round?
Alas, I’m not very optimistic for this year. The UK economy looks set to struggle, as the Iran conflict drags on. I still believe it’s time will come. And I will keep reinvesting my dividends until it does.
Why is Diageo struggling?
Spirits giant Diageo (LSE: DGE) is still in the FTSE 100, although it’s not for want of trying. Its shares have done just as badly as Taylor Wimpey’s, down 34% over one year and 55% over five.
The Johnnie Walker, Baileys, Guinness and Smirnoff owner has also been struck by the cost-of-living crisis, which has forced drinkers to trade down from its premium brands, as well as US tariffs, and localised issues in Latin America and China.
It’s now headed by turnaround specialist Dave Lewis, who salvaged Tesco, and I’m optimistic he’ll work his magic again here. Sadly, he started by halving the dividend. Diageo’s forward P/E is also low at 12.4, way below its 10-year average of 22. But with the oil price spike squeezing drinkers all over again, patience is once more required.
JD Sports is a beaten stock
I’m afraid the same must be said of my final portfolio straggler – self-styled ‘King of Trainers’ JD Sports Fashion (LSE: JD). This was also hit by the consumer squeeze. The timing was unlucky, because it had lined up a big move into the US through the $1.1bn purchase of local retail chain Hibbett.
I thought JD looked like an unmissable bargain with a forward P/E of around six. Unfortunately, it’s still around that today. The JD Sports share price is down 17% over the last year and 64% over five.
I think all three have massive recovery potential and are worth considering today. Investors may have to be patient though. They all need a wider economic recovery, and that could take a year or two. I’m backing Diageo to recover first. It’s updating the market tomorrow (6 May), and I can’t wait to see what it says.
