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FTSE 100-member Standard Life Aberdeen is down 40% in 1 year. Here’s what I’d do now

The last year has been a tumultuous time for a number of FTSE 100 shares. It has been especially challenging for Standard Life Aberdeen (LSE: SLA), with the asset manager’s share price dropping by over 40% during that time.

This, then, could be a good time to buy it for the long term. It trades on a low valuation, has a high yield and could benefit from various changes it is making to its structure. In contrast, another FTSE 350 share that released results on Thursday could be worth avoiding due to its high valuation and modest growth prospects.

High price

The company in question is engineering business Spirax-Sarco (LSE: SPX). Its full-year results showed a rise in revenue to £1,153.3m, while adjusted operating profit moved 50% higher to £299.1m. It recorded strong organic sales growth in Steam Specialties and Watson-Marlow, while Gestra and Chromalox performed well.  This suggests that the implementation of its strategy is progressing well, with recent acquisitions contributing to an improving overall performance.

Looking ahead, the company is forecast to post a rise in net profit of 7% in the current year. While this would be an encouraging performance, its valuation suggests that investors are anticipating a stronger outlook. It trades on a price-to-earnings (P/E) ratio of over 25, which indicates that it currently lacks a margin of safety.

Although Spirax-Sarco is performing well from a business perspective and expects to continue to grow its top and bottom lines over the medium term, it may lack investment appeal due to its high market valuation.

Recovery potential

In contrast, the Standard Life Aberdeen share price appears to be very cheap at the present time. Following its fall over the last year it now trades on a P/E ratio of 10, which suggests that it could offer a margin of safety. Further evidence of its low valuation can be seen in its dividend yield, which is 9.5%.

As well as being a cheap stock, Standard Life Aberdeen could perform better than many investors are currently anticipating. In the current year it is forecast to deliver a rise in earnings of 9%, despite continued risks facing the global economy. With the company in the process of changing its structure in order to focus to a greater extent on areas where it may have a stronger risk/reward opportunity, its potential to generate long-term profit growth could improve.

Certainly, Standard Life Aberdeen may not be a stock for less risk-averse investors. Investor sentiment may remain downbeat in the near term as it continues to face an uncertain set of trading conditions while seeking to make significant changes to its structure. However, for investors who are looking to pick up a high income return and have the patience to wait for capital growth over the long run, the company’s strong position in what could be a growing industry may lead to high returns in the coming years.

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Peter Stephens owns shares of Standard Life Aberdeen. The Motley Fool UK has recommended Standard Life Aberdeen. 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.