Over the past three months, the FTSE 100 has fallen by nearly 10% (excluding dividends), taking year-to-date losses to, well, 10%.
However, these losses are relatively subdued compared to the performance of a number of the index’s constituents. Indeed, some stocks have lost nearly 40% of their value since peaking earlier in the year.
Low-cost, no-frills airline easyJet (LSE: EZJ) has rapidly fallen out of favour with investors over the past four months.
Since peaking at a multi-year high of 1,790p back in June, the stock has gone into a nosedive and is now trading around 38% below its 52-week-high water mark.
It looks to me as if investors have been bailing out due to concerns about the state of the airline industry as a whole. Peers Ryanair and Flybe both recently warned on profits and, over the summer, several low-cost carriers collapsed.
However, despite the pressures impacting the rest of the airline industry, it seems that the City is confident easyJet can succeed where others have failed.
Since the beginning of the year, analysts have upgraded their growth forecasts by nearly 30% and, based on these numbers, the stock is trading at a forward P/E of just 9.4. A dividend yield of 4.9% is also on offer.
While I can’t claim that the stock won’t fall further, I think buying at this level could be wise looking at easyJet’s depressed valuation.
Fresnillo (LSE: FRES) is another stock that investors have rushed to sell over the past six months. In fact, over the past 12 months, the stock has lost more than 40% of its value, excluding dividends.
But why are investors running away from this precious metals miner at a time when volatility is rising, and demand for gold is improving?
It seems to me that this is a valuation problem. Even after recent declines, based on its current production outlook, Fresnillo is only on track to earn $0.60 (45p) per share for 2018. These numbers indicate the shares are currently changing hands for 19.5 times forward earnings, a demanding multiple that, in my opinion, doesn’t reflect Fresnillo’s lacklustre growth outlook — earnings per share (EPS) are set to fall 20% this year. A relatively underwhelming dividend yield of just 2.6% doesn’t help matters.
Unless there’s a sudden improvement in the group’s growth outlook, I think Fresnillo should be avoided.
Off the rails
Finally, there’s emerging markets-focused bank Standard Chartered (LSE: STAN), which has seen its shares slide 37% since February.
Here, it would appear that investors are running out of patience with the bank’s transformation programme, which is yet to produce any results. Even after stripping out nearly $3bn in costs over the past few years, the bank has still not achieved its 8% return on equity target — a key measure of bank profitability. Another round of job cuts is now planned to hollow out the cost base further.
Analysts are optimistic about the bank’s prospects, with EPS targets envisaging growth of 62% for 2018, and 16% for 2019. But even when you factor in this EPS growth, Standard fails to look attractive. The increase implies a forward P/E of 9.7 for the stock, which may seem cheap, but the rest of the banking sector is trading at a median P/E of 8.5.
Based on these figures then, even after recent declines, shares in Standard look expensive.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Fresnillo and Standard Chartered. 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.