Why I’d ignore the falling FTSE and buy these small-cap stocks today

Roland Head highlights potential buying opportunities amid the market sell-off.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

If you’re feeling spooked by the stock market’s sharp slide, it’s worth remembering that the FTSE 100 has only fallen by around 8% from its January peak.

Corrections such as this aren’t uncommon after a long period of growth. The good news is that most major global economies still seem to be in good health, so corporate profits should remain stable.

In fact, the trigger for the falls seems to be strong US wage growth and the likelihood of rising interest rates. This could cause investors to shift cash from stocks to government bonds.

My view is that the current market sell-off isn’t a serious concern. I don’t plan to sell anything and may even buy more shares. After all, lower prices mean higher dividend yields, and cheaper valuations.

Unfairly cheap?

Shares in upmarket interior furnishings group Walker Greenbank (LSE: WGB) rose by 4% today, after the firm issued a solid year-end trading update. Sales are expected to have risen by 17.9% to £108.9m, thanks to “increased overseas sales” and “licensing momentum”.

This good news will be a relief to shareholders. Walker Greenbank stock fell by more than 40% in November, after the group issued a profit warning. And in December, the company’s Loughborough wallpaper factory was hit by a fire.

A return to growth?

Today’s trading update indicates that full-year results should be in line with expectations. However, there still seem to be some concerns over UK brand sales, which fell by 6.1% excluding a recent acquisition.

Fortunately, growth elsewhere seems to be offsetting this slowdown. International sales rose by 23% last year, and UK sales including the Clarke & Clarke acquisition rose by 13.8%.

I think the UK weakness is something to watch, but not necessarily a cause for concern. The shares remain very cheap after today’s news, trading on a forecast P/E of 9 for the year ahead, with a prospective yield of 3.6%. Given the group’s strong balance sheet, I think this is too cheap. I’d be happy to buy today.

A wizard choice

Harry Potter publisher Bloomsbury Publishing (LSE: BMY) has lost 7% in Tuesday’s market sell-off. Shares in the group have now fallen by 15% so far this year. Despite this, I don’t think investors have much to worry about. Indeed, I’m quite tempted to add a few shares to my own portfolio.

Although the print publishing business is expected to face a long-term decline, Bloomsbury has so far avoided problems. A major reason for this is that it’s the main publisher of the Harry Potter series.

Alongside this, the group’s Adult division also publishes celebrity non-fiction books such as Tom Kerridge’s Dopamine Diet, a recent number one bestseller. A third part of the business focuses on academic titles.

A blockbuster set of figures

It’s not only Bloomsbury’s books that make good reading. The group’s accounts are also a pleasure to absorb, featuring strong cash generation, stable profit margins and a welcome lack of debt.

City brokers have become increasingly keen on this business, upgrading their earnings forecasts by almost 10% in 12 months. After today’s falls, the shares trade on a forecast P/E of 12.5 with a prospective yield of 4.4%. In my view, that’s cheap enough for this quality stock to deserve a closer look.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

More on Investing Articles

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

Is the S&P 500 going to 10,000 by 2030? This expert thinks so

One stock market strategist sees animal spirits taking hold and driving the S&P 500 index even higher by the end…

Read more »

Investing Articles

I’m expecting my Phoenix Group shares to give me a total return of 25% in 2025!

Phoenix Group shares have had a difficult few months but that doesn't worry Harvey Jones. He loves their 10%+ yield…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

14.5bn reasons why I think the Legal & General share price is at least 11% undervalued

According to our writer, the Legal & General share price doesn’t appear to reflect the underlying profitability of the business. 

Read more »