Down over 25%, here’s a bargain FTSE 100 stock I’m buying 

Many companies are struggling with inflationary pressures and recession risks. Here’s a FTSE 100 stock I’d snap up in the market uncertainty.

| 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.

Shot of an young Indian businesswoman sitting alone in the office at night and using a digital tablet

Image source: Getty Images

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.

There are many issues facing UK companies at the moment. They’re dealing with the inflation that’s driving up costs and denting consumers’ discretionary income. And the Bank of England has warned of a recession this year. But it’s still hiking interest rates, with the base rate of 1.75% set to increase borrowing costs for companies. These factors pose risk, but they’re not preventing me from buying shares. Mondi (LSE: MNDI), a paper packaging company, is a FTSE 100 stock I’m buying at the moment. 

Recent trading update

There were many positives in the recent half-year Mondi trading update. For example, group revenues increased to €4.5bn, up 37%. This excluded the Russian operations, which are set to be sold in the near future. 

At the same time, the group has dealt exceptionally well with inflationary pressures. Indeed, underlying EBITDA increased 66% year on year to €942m, with very strong margins of 20.9%, up from 17.2% in the same period last year. Basic earnings per share also totalled 148.4 euro cents, up from just 54.4 cents in the prior year. 

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

The fact that Mondi generates most of its energy needs internally, with biomass sources accounting for around 80% of fuels used in the process, has enabled this resilience. Further, it has also been largely successful in passing on any additional costs to customers. This differentiates Mondi from many other FTSE 100 stocks that have struggled to deal with such pressures. 

The major uncertainty

Despite these excellent results, the Mondi share price still dropped around 5% on the day of the trading update. This was mainly due to one major uncertainty for the company: the Russian business. 

Prior to the Russian invasion of Ukraine, the company generated around 20% of its underlying profits from the Russian entity. However, recognising the group’s corporate values and stakeholder responsibilities, Mondi has decided to sell these operations, and the divestment process is now under way.

Although the assets up for sale amount to around €1.7bn, it’s highly unlikely that the group will receive this price. Therefore, this could lead to asset write-downs in the future and a loss of future earnings. 

Why am I still buying this FTSE 100 stock?

Although the disposal of its Russian operations leads to large amounts of uncertainty, I feel that the rest of the business is still extremely strong. The recent half-year update demonstrated this fact. 

Further, there are many signs that this stock is now a bargain. It has a current price-to-earnings ratio of around 6, implying a major bargain. And the company recently raised its dividend by 8%, meaning Mondi now has a dividend yield of 4%, higher than in the past. For these reasons, I will continue to add Mondi shares to my portfolio. 

Our analysis has uncovered an incredible value play!

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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.

Stuart Blair owns shares in Mondi. 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

Warren Buffett at a Berkshire Hathaway AGM
US Stock

3 of the best pieces of advice from Warren Buffett’s final annual meeting

Jon Smith reviews some of the highlights from Warren Buffett's final conference and details investing lessons that everyone can learn…

Read more »

Content white businesswoman being congratulated by colleagues at her retirement party
Investing Articles

The Card Factory share price sinks after reporting its 2025 results

Our writer considers why the Card Factory share price responded negatively to this morning’s results announcement and latest trading update.

Read more »

Number three written on white chat bubble on blue background
Investing Articles

Just released: the 3 best growth-focused stocks to consider buying in May [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

£10k invested in Vodafone shares a decade ago is now worth…

Despite paying big dividends, Vodafone shares have produced negative overall returns over the last decade meaning investors have lost money.

Read more »

Mature black woman at home texting on her cell phone while sitting on the couch
Investing Articles

Hargreaves Lansdown investors are piling into BP shares for a 7% yield. Is that a smart move?

BP shares have tanked and the dividend yield's risen. Could there be a great opportunity here for long-term investors?

Read more »

Close-up image depicting a woman in her 70s taking British bank notes from her colourful leather wallet.
Investing Articles

Here’s the dividend forecast for Barclays shares through to 2027!

Should dividend investors consider buying Barclays shares to hold for the next few years? Royston Wild looks at the FTSE…

Read more »

Side of boat fuelled by gas to liquids, advertising Shell GTL Fuel
Investing Articles

4 reasons why I think the Shell share price fell on rumours the group wants to buy BP

The Shell share price responded negatively after newspaper stories emerged claiming that the energy giant’s considering buying its smaller rival.

Read more »

Investing Articles

Down 20% over the year, is GSK’s share price a stunning bargain after its Q1 results?

GSK’s share price has fallen significantly in the past 12 months, but this could mean it looks a major bargain…

Read more »