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3 of this year’s biggest FTSE 100 fallers I’d buy for 2019

The FTSE 100 has declined 9.6% in the year to date. In an overall disappointing period for the market, some individual stocks have fared much worse. Today, I’m looking at three of the hardest hit. I reckon these shares are now way oversold and could be great buys for 2019 and beyond.

Outstanding value

Most of the world’s big tobacco stocks are down by a low 20s percentage this year. British American Tobacco  (LSE: BATS) has slumped 46%. As such, it’s performed twice as badly as its peers, in a sector that’s performed twice as badly as the wider market.

Worries about regulation have led investors to snub tobacco stocks, but why has BAT been particularly scorned? I think there are main two reasons. First, its $49bn acquisition of Reynolds American last year means it currently has an elevated level of debt. Second, US regulators are proposing a ban on menthol cigarettes, which analysts at Morgan Stanley reckon account for around 60% of BAT’s US cigarette profits and 25% of overall group profits.

On the debt front, BAT’s deleveraging plans remain on track, while the ban on menthol will take years to come into force, if it happens at all (it’s not a given). Furthermore, it’s likely many smokers would simply migrate to the non-menthol variant of their favoured brand.

Trading on just 9.3 times current-year forecast earnings, with a prospective dividend yield of 7.4%, BAT offers outstanding value, in my view.

Great opportunity

Shares of Fresnillo  (LSE: FRES), the world’s leading silver miner and one of Mexico’s largest gold producers, are down 48% in the year to date. Weakness in precious metals prices and the company working some lower-than-expected ore grades in a couple of its silver mines have hit investor sentiment.

However, Fresnillo is a low-cost producer and can remain profitable when metals prices are relatively depressed, while lower than expected ore grade is something miners can encounter from time to time. In these circumstances, and with the company also having a strong development and exploration pipeline, I believe the slump in the share price represents a great opportunity to buy into a world-class business.

A rating of 17 times current-year forecast earnings is cheap (and a prospective 3.2% dividend yield is generous) by the company’s historical standards.

Packs of upside

The packaging sector has a strong growth driver in the rise and rise of digital shopping. However, stocks in the sector have underperformed the wider market this year, including DS Smith  (LSE: SMDS), whose shares are down 16%. Furthermore, the reversal in the sector has only come in recent months, with it previously having been on the rise for much of the year. As such, DS Smith’s shares have fallen 37% from a high in August.

A number of analysts in the sector have said they’d underestimated the pace and size of capacity of new containerboard supply coming on to the market. Goldman Sachs, for example, reckons oversupply is likely occur some time in 2020-22, even if demand growth remains at current rates. However, my colleague Royston Wild has been snapping up shares in DS Smith, arguing that these worries are baked into the share price.

With the stock now trading on just 9.3 times current-year forecast earnings, with a prospective dividend yield of 4.7%, I agree with Roy that the low rating should provide plenty of upside in the years ahead.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended DS Smith and Fresnillo. 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.