I see myself as a contrarian investor, one who hunts down some of the most despised stocks on the FTSE 100 and buys them before they swing back into favour. That way I pick up their shares on the cheap, and benefit when they recover.
I tracked the Rolls-Royce share price as it slid relentlessly before finally deciding it was hated enough to buy in October. Since then it’s rocketed 40%. Can I repeat the trick?
Is this the worst UK blue chip?
Fund platform AJ Bell has just issued a list of the most and least popular UK stocks among analysts. It also warned that analysts are prone to get it wrong, as their top picks of the last decade have repeatedly failed to beat the index.
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Shareholders in asset manager Abrdn (LSE: ABRDN) will be hoping they are wrong this year, too, because in January analysts were shunning the stock more than any other. A total of eight analysts slapped a ‘sell’ notice on Abrdn, with five recommending ‘hold’, and just one lonely soul calling it a ‘buy’.
That works out as 57% in favour of selling, way ahead of second most hated FTSE 100 stock, Rightmove, at 47%. 2022 was certainly tough on Abrdn, which delivered a negative total return of 14.9%, even after taking into account its dividend, which now yields 6.91%.
Abrdn wasn’t 2022’s worst performer on the sell list. Ocado delivered a negative total return of 53.2%, while investors in Dechra Pharmaceuticals (50%), Hargreaves Lansdown (34%), Rolls-Royce (24.2%), and Admiral Group (20.4%) all lost more.
Risky but rewarding
As an asset manager, the Abrdn share price can be expected to tank when markets struggle, as they did last year. However, it has been falling since the ill-fated merger with Standard Life in 2017, with its shares roughly halving since then.
Investor confidence drained again after last summer’s reported drop in first-half pre-tax profits, down 39% from £163m to £99m. Abrdn management blamed market movements.
Sadly, last year’s share price fall doesn’t translate into a dirt-cheap share price, as Abrdn trades on a P/E ratio of 15.2, roughly fair value. There are much cheaper dividend stocks on the FTSE 100 today. The dividend is forecast to climb slightly to 7% this year, but again, there’s a sting in the tail. Cover is expected to slip from today’s wafer-thin one, to just 0.9. This does leave a question mark over its sustainability.
It’s not hard to see why analysts are wary. Yet the Abrdn share price is also showing signs of life, climbing 12.48% year to date as investor sentiment picks up. Management has also rewarded loyal investors with a generous share buyback programme, acquiring 179m of its own shares last year at a cost of £300m.
Abrdn remains a troubled company, and this remains a troubled market. However, I invest in FTSE 100 shares with a minimum 15-year view and over that timescale, I reckon it would make a good long-term buy and hold. It’s now on my wishlist and I’d buy it today if I had cash to spare, whatever analysts say. But then, I am a contrarian.
