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Should You Buy These Underperforming High-Yielders? British American Tobacco plc, Old Mutual plc & Bank of Georgia Holdings plc.

Shares that have underperformed the market tend to make unattractive stock picks; as they usually continue to underperform in the following months. But, sometimes, a pullback after a long rally could present an attractive opportunity to buy into a fast growing company at a cheaper price.

To differentiate between the value plays from the value traps, investors should look at whether the long term fundamentals of the business remain intact or whether the cause of its underperformance is due to shorter term issues.

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Here are three high-yielding shares that have underperformed the market:

British American Tobacco

British American Tobacco (LSE: BATS) faces many challenges; ranging from health-related lawsuits, tobacco tax rises in emerging markets, plain packaging regulations, declining tobacco consumption in developed economies and the rise of e-cigarettes.

The main concern for the tobacco group in the long term has been with its invariably declining cigarette volumes since 2009. With the pace of declining volumes set to accelerate in emerging markets, BATS may find it more difficult to raise prices fast enough to grow its revenues and earnings

But, even if BATS manages to grow its earnings through higher margins, recent challenges should slow the rate of its earnings growth considerably. Analysts expect revenues will fall by around 3% for 2015, with earnings per share growing by less than 1%.

Despite underperforming the broader market, its shares still trade at a forward P/E of 16.5 and a prospective dividend yield of 4.5%. With slowing growth, its valuation is expensive; and its shares could fall further.

Old Mutual

Weaker profitability from Old Mutual (LSE: OML) seems to stem mostly from currency fluctuations. The falling value of the South African Rand caused adjusted earnings per share to fall 3% to 17.9 pence in 2014. On a constant currency basis, operating profits actually rose by 16%.

The recent sell-off in Old Mutual’s shares came as the company announced that it intends to sell most of its US asset management arm. Its asset management division has been highly profitable, and analysts have different opinions on whether the company should increase its focus on banking and insurance markets in Africa.

Its emerging markets business continues to grow fast, with gross sales growing at 20% for the first three months, even with economic headwinds from South Africa. Financial service market penetration remains poor in Africa, so there should be enough opportunities to re-invest the proceeds from the selling down of its asset management business.

Analysts remain optimistic with the group’s growth prospects, yet valuations are cheap. Its shares have a forward P/E of just 10.5 and have an attractive prospective dividend yield of 4.7%.

Bank of Georgia Holdings

Georgia’s close economic ties with Russia has negatively affected Bank of Georgia Holdings (LSE: BGEO), as the Georgian Lari continues to devalue. 

Underlying earnings in its local currency have fared better though, with EPS in the first quarter of 2015 rising 7.9%. Loan losses remain stable, and its strong cost efficiency and healthy net interest margins continues to support earnings.

It shares seem to be quite attractively priced, with a forward P/E of 9.0 and a prospective dividend yield of 4.0%. Expected earnings coverage of 2.8x suggests that the dividend is safe, despite currency devaluations.

But, negative market sentiment with Russia-exposed companies will continue to put pressure on its valuations.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.