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The market still hates this FTSE 100 dividend stock but I think it’s an absolute bargain

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With Brexit bumbling along and the US/China trade war still making the headlines, markets remain volatile.

So long as you have the mentality of investing for decades rather than months, however, any short-term fragility simply provides an opportunity to pick up what could turn out to be bargains (there are no guarantees in investing, of course). 

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One company I’ve thought undervalued for some time has been FTSE 100 broadcaster ITV (LSE: ITV). Indeed, I couldn’t stop myself from taking a position back in February. Since then, the price has dropped further. Since then, I’ve bought more. 

Part of my reasoning is simply down to the valuation. ITV now trades on just 8 times forecast earnings. For a company that still generates more than reasonable operating margins and roughly 40% better returns on the capital employed than the average across the index in which it’s a part, that’s surely too cheap?

The yield of 7.2% for the current year looks safe for now and the possibility of the company becoming a bid target grows stronger the longer it stays in doldrums. 

Yes, recent trading hasn’t been wonderful. Advertising revenue continues to fall due to the ongoing economic and political uncertainty and the lack of a major sporting competition like the World Cup this year.

A mere 1% rise in organic revenue at ITV Studios over Q1 was underwhelming. And the recent death of a participant on the popular Jeremy Kyle Show has also led investors to worry that other programmes, such as Love Island, might be scrapped too (two contestants have committed suicide since participating).

Nevertheless, I was encouraged to see the company’s highly regarded CEO, CFO, and chairman all making sizeable share purchases a couple of weeks ago. I like management with ‘skin in the game’ and these recent transactions suggest I’m not the only one that thinks the stock is inexpensive. At these levels, I’ll continue to accumulate. 

Down but not out

Another company I continue to believe will turn things around is retailer Superdry (LSE: SDRY)

Despite being my top stock for May, I did caution readers at the start of the month that a poor trading update from the already-battered mid-cap should be expected.

Some awful numbers duly arrived (particularly relating to wholesale and e-commerce revenues), a profit warning was issued, the price fell… and I topped up my stake in the company.

Since then, the performance of the shares has been quite encouraging. Whether this can be wholly attributed to the appointment of interim CFO Nick Gresham, or more a sense founder Julian Dunkerton and chairman Peter Williams are getting things in order, is hard to say.

Regardless, a double-digit rise last Wednesday suggests any signs of progress are likely to be lapped up by the market.

But Superdry’s recovery, if it does happen, won’t take just a few months. Indeed, I believe it could easily be a couple of years before the market really likes the shares again. And that’s assuming we don’t enter a protracted bear market.

As someone with decades of investing still ahead of me, however, I’m willing to be patient.

There’s still a risk of things going from bad to worse, but the valuation of 9 times forecast earnings gives a sufficient margin of safety, I think. 

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Paul Summers owns shares in ITV and Superdry. The Motley Fool UK has recommended ITV and Superdry. 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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