The FTSE 100 has seen a bit of a bounce since Black Monday, but the index is still 13% down from its April high of 7,104. As such, there continue to be plenty of opportunities around for bargain hunters.
ARM Holdings (LSE: ARM), Diageo (LSE: DGE) and PZ Cussons (LSE: PZC) all look promising prospects from current levels.
ARM Holdings
Intellectual property (IP) is a valuable commodity. Just ask ace fund manager Neil Woodford, who, after a quarter of a century running equity income strategies, recently launched a fund — Woodford Patient Capital Trust — with a strong bias towards companies with cutting edge IP.
Woodford is interested in early-stage companies, but established British technology giant ARM still has great growth prospects ahead of it, on account of the strength and continuing development of its IP. The company’s power-efficient chip designs are ubiquitous in smartphones, but its range of end markets and customers is continually growing, and the so-called Internet of Things looks set to be a big driver for growth in the coming decades.
Its shares — trading at 920p as I write — are 24% down from their 52-week high, putting the company on a 12-month forward price-to-earnings (P/E) ratio of 26.8, which is highly attractive compared with historical levels. As such, I would say ARM could be well worth buying during this market sell-off.
Diageo
Diageo is a high-quality, defensive blue-chip business. It owns an impressive stable of drinks brands, including a number of world number ones, and a host of regional bestsellers. After years of strong and steady growth, there have been a number of challenges of late.
Nick Train — who has been described as “Britain’s Warren Buffett” — manages the Finsbury Growth & Income Trust, and has been a long-time supporter of Diageo. Train’s commentary for the trust’s monthly factsheet in June was devoted entirely to Diageo. It’s well worth a read, but his crucial point is that “for companies of Diageo’s calibre, with brands as self-evidently rare and valuable, prolonged business and share underperformance is untenable”.
Train notes that there is plenty of scope for management to sort things out but adds that “if the incumbents can’t get adequate returns on the brands and their cash flows, there are plenty of other management teams who would fancy a go”.
One way or another Diageo should deliver for shareholders in the long run. For the moment, analysts are forecasting a mere 3% uptick in earnings for the company’s financial year ending June 2016. With the shares trading at 1,706p as I write (16% off their 52-week high) the forward P/E is 18.7 with a dividend yield of 3.4%. These look attractive ratings for buyers with a long-term horizon.
PZ Cussons
Brand strength is also at the heart of consumer goods company PZ Cussons, where the focus is mainly on personal care and beauty products. This £1.3bn FTSE 250 firm doesn’t have the global heavyweight status of a Unilever or Reckitt Benckiser. However, the corollary of that is that Cussons has the potential to gallop faster than those blue-chip elephants, as it expands into targeted international markets, where it believes it can make the best returns. Could Cussons grow into a world giant, like Unilever and Reckitt? In time, it’s perfectly possible.
At the moment, Cussons is battling headwinds in its largest market, Nigeria. The shares, trading at 313p as I write, are down 20% from their 52-week high. As ever, the market tends to be rather myopic. On a forward P/E of 17, with a useful dividend yield of 2.6% (and a record of 42 consecutive years of increases), PZ Cussons looks very buyable at current levels for a brand-rich company with long-term growth prospects from a relatively low base.
