These fallen FTSE 100 stocks are climbing again: is it time for me to buy?

A few FTSE 100 (INDEXFTSE: UKX) stocks have been battered in recent years, but that’s where I look for bargain recovery shares.

| 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.

Educational specialist Person (LSE: PSON) disappointed investors when it was forced to freeze its dividends in 2016 after building a reputation for solidly progressive payments. But worse was to come the following year when the annual cash handout was slashed from 52p per share to just 17p.

It was all down to troubles with the firm’s North American business, and even today the share price is still down 40% from its March 2015 high.

But with the firm’s recovery plan under way now for several years, the more recent price chart looks better. We’ve seen a 17% rise over the past two years while the FTSE 100 has remained pretty much flat, so is it time to buy back in?

A Q1 update on Friday recorded a 2% revenue rise in North America, with a 4% rise in the firm’s Core markets, and flat revenue from its ‘Growth’ regions (which include China, Brazil, South Africa and India).

Costs

The company said it is “on track to deliver annualised cost savings in excess of £330m exiting 2019.” Those cost savings do appear to be making a difference, with net debt down to £0.5bn at the end of the quarter, from £0.6bn a year previously — though on a post-IFRS 16 basis, net debt was around £1.2bn.

Pearson has disposed of its US K12 Courseware business, and after adjusting for that, its guidance for the full year remains unchanged, with an expectation of operating profits between £590m and £640m.

I’m impressed by Pearson’s progress, so why am I not buying? The company is still in a very tough market, and the US is especially competitive. And the price recovery, though still modest, puts the shares on P/E multiples of around 14. I don’t see a sufficient safety margin there to cover the risk.

Retail shock

Kingfisher (LSE: KGF) investors saw their shares crumble in 2018, but since the beginning of 2019 they’ve put in a 28% recovery. To put that into perspective, though, Kingfisher shareholders are still down 38% over the past five years, and they’ve only had modest dividends of around 3% per year to offset their losses.

But is the owner of B&Q and Screwfix back on track and are the shares cheap?

Well, the dividend is starting to look decent again, with a yield of 4.6% on the cards for the year ending January 2020. Admittedly that’s mostly because of the depressed share price, but analysts are predicting a return to dividend growth with an 8% hike to 11.7p pencilled in for 2021.

And while last year’s dividend was maintained at 10.8p, the company has returned an additional £600m to shareholders through share buy-backs over the past three years — though the timing and prices paid might be questioned, as the shares were steadily declining over that period.

New growth

While the year did still bring a 13% fall in underlying pre-tax profit, the core of the company’s restructuring (what it calls rebuilding its ‘engine’) seems pretty much complete, and a return to earnings growth is expected for the current year.

If the 18% EPS uptick predicted for this year materialises, we’ll be looking at a P/E of around 10, dropping to a little over nine on the further 10% rise indicated for next year. Dividends by then should be around twice covered too, and I’m seeing Kingfisher as a tempting income-plus-growth play.

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.

Alan Oscroft 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

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

1 top growth stock on my Christmas buy list!

Ben McPoland reveals one top-notch growth stock down 29% that he plans to stuff into his portfolio in time for…

Read more »

Growth Shares

This FTSE 250 stock soared 9% yesterday! Is the party just beginning?

Jon Smith points out a FTSE 250 stock that leapt based on some speculation yesterday, but questions whether to get…

Read more »

Investing Articles

£10k in savings? These 2 gems could make £832 in passive income

Jon Smith outlines a couple of dividend shares with an average yield above 8% that could enhance a passive income…

Read more »

Growth Shares

This major UK bank just updated the forecast for the Rolls-Royce share price

Jon Smith talks through an analyst forecast for the Rolls-Royce share price and explains why he thinks further gains could…

Read more »

Middle-aged white male courier delivering boxes to young black lady
Investing Articles

This FTSE 100 share looks like a Black Friday bargain for me!

Our writer explains why he recently took the opportunity to buy this ultra-cheap FTSE 100 share after its 39% year-to-date…

Read more »

Investing Articles

What will happen to the stock market in 2025? Here’s what the experts say

The UK stock market did well at the start of this year but has faltered towards the end. Our writer…

Read more »

Investing Articles

After plunging nearly 40%, I’m considering buying this bargain FTSE 100 stock

Paul Summers has been running the rule over one of the year's biggest FTSE 100 losers. Is a screamingly cheap…

Read more »

Ice cube tray filled with ice cubes and three loose ice cubes against dark wood.
Investing Articles

Just released: this month’s lower-risk, higher-yield Share Advisor recommendation [PREMIUM PICKS]

Ice ideas will usually offer a steadier flow of income and is likely to be a slower-moving but more stable…

Read more »