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Could this year’s biggest FTSE 100 fallers be 2018’s biggest winners?

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In the world of stocks, it’s not infrequent for some of one year’s biggest fallers to be among the next year’s biggest winners (and vice versa). With this in mind, I’m looking at the top FTSE 100 flops of 2017 — shares that could make stunning recoveries in 2018.

The tanked ten

The Footsie’s 10 worst performers over the last 12 months (as I’m writing) are shown in the table below.

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  Sector Recent share price (p) 12-month fall (%)
Centrica Utility 139 40
BT Telco/media 269 27
WPP Media 1,349 25
Mediclinic Health 584 23
ITV (LSE: ITV) Media 165 17
SSE Utility 1,299 15
Shire (LSE: SHP) Health 3,899 15
GlaxoSmithKline Health 1,313 15
Next Retail 4,298 13
M&S Retail 310 13

As you can see, there’s a degree of sector concentration. However, for at least some of these stocks, company-specific issues have compounded the market’s sector concerns. That’s certainly the case with the two biggest fallers, Centrica and BT.

My Foolish friend Harvey Jones has recently written an in-depth article on Centrica and its recovery prospects and an equally interesting piece on BT’s troubles and turnaround potential. However, my eyes are drawn to a couple of stocks a little lower down the losers list.

Cheap telly

ITV has been very much out of favour with investors. The 17% fall in its shares over the last 12 months is hefty enough but extend the timeframe to 24 months and the decline is 40%.

The market is concerned by the structural threat to the business posed by digital media, as well as its UK focus at this transitory time of Brexit uncertainty. However, the company is highly cash generative, with a strong record of returning surplus cash to shareholders, including though special dividends.

I believe the fall in its shares has more than discounted the challenges faced by ITV. As such, the stock looks very buyable to me on a current-year forecast price-to-earnings (P/E) ratio of 10.7, with a prospective dividend yield of 4.7%.

World leader

The healthcare sector is one area of the high-flying market where there remain some good value growth stocks. Pharma group Shire, which has laboured under negative investor sentiment since its $32bn acquisition of US company Baxalta last year, is one such stock.

This large acquisition has increased risk and also debt. However, integration is well advanced and I believe Shire’s enhanced position as the world leader in an attractive market (rare diseases) isn’t adequately reflected in its share price.

The company doesn’t pay much of a dividend at this stage (the prospective yield is just 0.7%) but it’s the potential for the share price to rise strongly that leads me to rate the stock a ‘buy’. This year’s forecast P/E is just 10.3 and I believe we could see a significant re-rating in 2018.

Others to consider

Some Footsie shares fell so heavily during 2017 that the companies were demoted from the elite index to the second-tier FTSE 250. If you’re looking for further potential recovery stocks to investigate, the following all fell far enough to drop clean out of the FTSE 100: Babcock International, Capita, ConvaTec, Dixons Carphone, Hikma Pharmaceuticals, Merlin Entertainments, Provident Financial and Royal Mail.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended Hikma Pharmaceuticals, ITV, and Shire. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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