With the FTSE 100 having disappointed thus far in 2015, it is unsurprising that many investors are seeking more defensive stocks. In other words, with the Greek crisis and Chinese stock market crash causing investors to become rather unsettled, the focus is gradually switching to ‘risk-off’ companies that are likely to weather an economic storm better than their cyclical peers.
However, now could prove to be a great time to buy stocks that offer a degree of risk, but at a very appealing share price. That’s because it is during the more challenging periods, such as the outlook today, that the best bargains can be on offer.
For example, house builder, Barratt Developments
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(LSE: BDEV), today announced that it was expecting a 45% increase in its pretax profits in the current year. That would represent a superb performance and show that the UK housing market continues to move from strength to strength, with Barratt’s considerable exposure to the London property market helping it to outpace some of its more regional-focused peers.
Furthermore, Barratt stated that the fall in the share prices of house builders yesterday following the changes to mortgage interest relief for buy-to-let landlords was overdone. Looking ahead, Barratt believes that the outlook for the UK housing market is very robust and yet its shares trade on a price to earnings growth (PEG) ratio of just 0.7, which indicates that capital gains could be on the cards.
Similarly, the banking sector remains very undervalued – perhaps even more so as a result of contagion fears regarding the Greek debt crisis. As such, Santander (LSE: BNC) (NYSE: SAN.US) continues to offer excellent value for money, with its future financial standing having been bolstered by a successful placing and its performance likely to benefit from its diverse product offering.
As such, Santander is expected to grow its bottom line at a double-digit rate over the next couple of years, which puts it on a PEG ratio of 1, which is great value for such a large, diversified and stable bank. And, while further problems in the Eurozone could put pressure on its share price, it remains a great buy for long term investors who are less concerned with volatility than most of their peers.
Meanwhile, there is also great value on offer within the chemicals sector. For example, Alent (LSE: ALNT) trades on a price to earnings (P/E) ratio of just 12.3 and yet is forecast to increase its bottom line at the same pace as the wider market. In fact, its net profit is set to rise by around 8% per annum during the next two years and, with it offering a well-covered dividend, there is scope for it to become a very appealing income stock. In fact, Alent pays out just 36% of its profit as a dividend and yet still yields 2.9%, which means that over the medium term it has scope to become a 4%+ yield play.
So, while the risk appetite of investors may be dwindling as volatility and fear rise, the likes of Santander, Alent and Barratt show that there are capital gains on offer at very appealing prices.
