While the FTSE 100 is now almost back to where it was at the start of 2022, the same can’t be said for many of its constituents. Today, I’m looking at two examples of stocks that haven’t had the best opening third of the year. One of these I’d be tempted to buy before the end of the month and the other I’ll be steering clear of, for now.
Pandemic winner
Discount chain B&M European Value Retail SA (LSE: BME) was a major winner during the pandemic, thanks to being given “essential” status by UK government.
I reckon its business model is also ideally suited to a tough economic environment like the one we’re in. With the cost of living charging higher and a recession potentially on the way, people will be looking to grab deals where they can. And B&M sells just the sort of everyday products that people will continue to buy, making it quite defensive.
Of course, snapping up a stock in the run-up to results (31 May) isn’t free of risk. While I do expect trading to have been fairly robust and the outlook to be a lot better than other retailers, the question remains, will this have any real impact on sentiment?
The very recent announcement that billionaire co-owner Simon Arora is to retire next year could also keep the share price — down 18% in 2022 already — under pressure on its own.
FTSE 100 bargain buy
Then again, I think the current valuation of 13 times forecast FY23 earnings takes this into account. And if that wasn’t tempting enough, there’s a predicted 4.2% dividend yield in the offing too.
So long as I diversify some of this risk by investing in other sectors, I think B&M could prove a bargain buy for me at this point.
Fallen star
By sharp contrast, fellow FTSE 100 investment platform Hargreaves Lansdown (LSE: HL) doesn’t appeal. That’s despite the company’s share price tumbling 30% in 2022.
Normally, such a drop in a quality company would have me backing up the truck. After all, Hargreaves has consistently generated great returns on the money it invests in itself. Margins in this line of work are around 50-60%. The current P/E of 20 also looks tempting, given that it’s far below the five-year average of 32. So what’s stopping me?
Well, firms like Hargreaves inevitably suffer when people are feeling the pinch. In times of inflation, the desire/need to reign in spending is there. Less so the inclination to put what’s been saved to work in the stock market.
This might sound myopic. Research consistently shows that equities tend to outperform everything else over the long term. But it’s also completely human. And I suspect this drawback may become fairly evident when the business reveals its latest set of interim numbers on 12 May.
One for the watchlist
There will also come a time when this FTSE 100 stock becomes a brilliant contrarian opportunity. I just don’t think we’re quite there just yet. Although I know no better than anyone else where the share price goes next, I’d prefer to see a few chinks of light before I take the plunge.
