The Motley Fool

Why shares in Micro Focus and this FTSE 100 giant plunged in March

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Arrow descending on a graph portraying stock market crash
Image source: Getty Images.

In an ideal world, private investors taking the responsibility for picking their own stocks would always have time to keep up to date with events in the markets. In reality, it’s easy to get sidetracked by life.

With this in mind, here’s a recap on why the share prices of two of the UK’s largest listed companies dived last month.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Biggest loser

Software firm Micro Focus (LSE: MCRO) was, by some margin, the biggest faller in the market’s top tier in March. In a absolutely awful few days, 50% of the company’s value was wiped as investors headed for the exits following the release of a gloomy trading update.

In a nutshell, Micro Focus was forced to cut its annual revenue forecast following a reduction in licence income. It now expects this to fall 6-9% rather than the 2-4% originally predicted. Issues relating to its purchase of assets from Hewlett Packard Enterprises were also highlighted. Factor in the resignation of its CEO and a huge drop was somewhat inevitable, particularly given the company’s high valuation immediately prior to the news being released. 

Was the sell-off overdone? Given that the stock had already recovered around 40%, it would appear many investors think so. News that hedge fund Elliott Management has now taken a stake in the company has served to further re-ignite interest in the company (and spark rumours about it being taken into private hands). Trading at a forecast price-to-earnings (P/E) ratio of just 9 for the current financial year ending 30 April, it’s understandable if some contrarians/value hunters feel there is now a sufficiently large margin of safety.

Nevertheless, with revenues falling and debt levels remaining high, I wouldn’t rule out a dividend cut in the near future. A lot of negativity may be priced in but Micro Focus still looks a risky bet for now.

Braced for Brexit

B&Q and Screwfix owner Kingfisher (LSE: KGF) was another casualty in March, with shares falling heavily following the release of its latest set of full-year results. At first glance, this seemed rather unfair.

To summarise, the company reported a 1.3% rise in underlying pre-tax profits of £797m for the 2017/18 financial year — slightly higher than analysts were expecting. At £11.7bn, sales were 3.8% higher.

CEO Veronique Laury said “good progress” had been made during the second of Kingfisher’s five-year transformation plan and that changes were “now visible” across the company’s stores and online. Product ranges had been unified, digital initiatives were “gaining momentum” and efforts to make operations more efficient were beginning to bear fruit.

Despite all this, the home improvement retailer also reflected that performance over the last year had been “mixed“, with difficulties in France offset by the positive performances of its operations in Poland and Screwfix in the UK. Moreover, the outlook for its main markets wasn’t encouraging. While Poland was “supportive“, the UK and France were “more uncertain” and “volatile“, respectively.

Having fallen 15% on the day results were announced, Kingfisher’s share price now appears to have stabilised. The stock changes hands at 12 times forecast earnings and offers a fairly decent dividend of 3.8% for the new financial year.

Forced to make a choice, I’d probably opt for the £6.5bn-cap over Micro Focus. That said, the potential for further volatility as a result of Brexit and reduced consumer confidence can’t be ignored. 

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Micro Focus. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.