In general I do not follow a contrarian investing philosophy. Just because other investors do not like a share does not mean I should. But if I can find shares to buy for my portfolio that I like and that have had their prices beaten down due to their unpopularity, they could offer me great opportunities. Here are three such UK shares I would consider for my portfolio at the moment.
Persimmon
It is easy on one hand to understand why investors are souring on housebuilding shares like Persimmon (LSE: PSN). The economy has deteriorated markedly and often that means housing prices will fall. That could be bad for both revenues and profits at companies like Persimmon.
On the other hand, for now at least both demand and selling prices remain strong. Admittedly, the volume of completions in the first half fell 10% compared to the equivalent period last year and revenue fell by 8%. But the average selling price increased 4%. Although the sales drop highlights the risk if demand slows more widely, Persimmon said demand remains strong, enquiry levels are healthy, and cancellations low.
The company has £0.78bn of cash and yields a very attractive 12.9%. The shares have fallen 40% in the past year. I would consider buying them for my portfolio.
Dunelm
Another big faller over the last 12 months is homewares retailer Dunelm (LSE: DNLM), down 35%. The fear here is that slowing consumer spending could hurt demand, while cost inflation may squeeze margins.
I think Dunelm deserves credit for being a world class retailer. It reckons it can pass on cost increases in ways that do not hurt its profit margins too much. Its broad range of products could mean that even if consumer spending overall slows, this retailer is able to attract new customers priced out by competitors. It announced today that sales in the past year rose 16%, although the fourth quarter did see a 6% decline compared to the same period the year before. It expects profits for last year to be slightly ahead of analysts’ expectations.
The shares yield 4.1% and trade on a price-to-earnings ratio of around 12, which I regard as attractive for a business of this quality.
JD Sports
Another beaten up retailer is JD Sports (LSE: JD). The JD Sports share price has increased over a third in the past month. But clearly the company still has its doubters in the market as it remains 23% down over the past year.
I continue to see these as shares to buy for my portfolio. JD has a proven business model and increasingly global reach, and has tightened its corporate governance in recent months. That includes the appointment of a well-regarded new chairman.
Last year saw record sales and profits. The company thinks it can deliver equally strong results this year. Inflation and supply chain issues are a risk to profitability but, like Dunelm, the company seems confident it can cope with that risk.
