Let me say first that the stock market could fall further in the short term. There’s a lot to be said for drip-feeding investments at the moment as a result. But over the long term, the sharp share price declines we’ve seen makes the shares I’m looking at today seem too cheap to me.
On a black run
Like an amateur skier on a black run, the share price of Avon Rubber (LSE: AVON) has been going downhill quickly. On Friday alone, the shares lost more than 10% of their value. But they regained 1.2% on Monday, although at one stage they were down over 12%.
The producer of masks for the military has continued to add big contracts. This is why, until last month, the shares had been rocketing.
The recent share price fall isn’t on the back of any negative news from the company. It’s a combination of the general market sell-off perhaps compounded by the high valuation of the shares and some investors taking profits while the market is more volatile.
Emphasising the regard investors hold it in, in the last five years the share price has risen over 225%. That’s even including the recent steep fall.
To me, there’s no clear reason why the shares should be so much cheaper than they were a month ago. This is a high-margin, growing business that keeps winning contracts and so the shares are now starting to look much better value.
Digging up profits
Shares in mining giant Anglo American (LSE: AAL) had been on a decent run in the latter part of 2019. This year so far has been a different story though. Even the opportunistic bid for struggling Sirius Minerals hasn’t as yet been able to boost the share price.
On Friday, the miner was the worst-performing FTSE 100 share. The share price dropped by around 8% on that day and it was down another 10% on Monday. In 2020 so far, the shares have lost over a quarter of their value.
And yet the business itself is performing well – hence why I think the share looks cheap. In February full-year results showed revenues 8% higher at $29.8bn with underlying cash profits (underlying EBITDA) rising 9% to just under $10bn.
The group itself presumably thought its shares were too cheap as well as it’s just finishing a £1bn share buyback. I wouldn’t be at all surprised it if continued to buy them back at the current depressed price. This could give a short-term boost to the price.
Anglo has done well to reduce its debt and become a diversified miner. When it comes to the factors within its control, I think it has done an excellent job. The problem is that with economic fears abounding, investor appetite for mining shares is diminishing.
The steep falls in the share prices of both Avon Rubber and Anglo American mean that in these volatile times they’re shares I’m keeping a close eye on. Both are high-quality businesses that are starting to look too cheap to ignore to me.
It’s official: global stock markets have been on a tear for more than a decade, making this the longest bull market in history.
But this seemingly unstoppable run of success poses an uncomfortable question for investors: when will the current bull market finally run out of steam?
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Andy Ross owns no share mentioned. The Motley Fool UK has recommended Avon Rubber. 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.