When I was a young investor in the 1980s and 1990s, I used to cheer when share prices rose and panic when they fell. Nowadays, as an older and wiser value/dividend/income investor, I do the opposite. Hence, I got quite excited when I saw the share price of one FTSE 100 share on my buy watchlist hit its 2023 low earlier today.
I love bottom fishing
As a veteran value investor, I love hunting for unloved, unwanted, and undervalued shares in otherwise solid companies.
That said, I’m not in the business of catching ‘falling knives’ with the goal of making short-term trading profits. Instead, I’m looking for ‘fallen angels’ in the Footsie — stocks trading at attractive price levels that I can buy and hold for the long term.
At present, I have at least 17 FTSE 350 stocks on my watchlist, many of which I regard as bargain buys. And one of these shares, whose price just keeps getting lower, is mining company Anglo American (LSE: AAL).
Anglo American plunges to a 52-week low
This Footsie stock has been on my radar for a couple of months, after I noted its rapid decline from its 2022 highs.
At the current share price of 2,292p, this miner is valued at £30.7bn, making it a FTSE 100 middleweight. But earlier today, its shares crashed to a 52-week low of 2,263.13p, before rebounding.
At its 52-week high on 7 June 2022, this stock peaked at 4,036p. Thus, in less than a year, the shares have lost close to half (-43.2%) of their value. Yikes.
Here’s how this stock has performed over seven different timescales:
| One day | +0.6% |
| Five days | -2.4% |
| One month | -5.5% |
| Year to date | -29.2% |
| Six months | -28.5% |
| One year | -38.1% |
| Five years | 29.4% |
My chart clearly shows the steep decline of Anglo’s share price over the past six and 12 months. However, the stock is up by almost three-tenths over the last five years. Also, these figures exclude cash dividends, which would boost returns significantly.
I’d buy Anglo for its dividends
My investment case for buying this stock is simple: I think these shares are too cheap, plus I like the look of their cash yield.
Currently, the shares trade on a price-to-earnings ratio of 7.7, for an earnings yield of 13%. That’s a lowly rating, but history has taught me that miners’ earnings (and mining stocks) can be very volatile.
Also, this stock offers a market-busting dividend yield of 7.1% a year, versus 3.7% for the wider FTSE 100. What’s more, this cash stream is covered 1.8 times by earnings, which is a decent margin of safety.
Then again, cheap shares can keep getting cheaper, as Anglo has amply demonstrated recently. Also, metals prices have fallen this year, which will undoubtedly depress the group’s 2023 earnings.
Nevertheless, as I wrote earlier, I aim to own this undervalued stock for the long term. Thus, I will buy it as soon as I have enough cash at hand!
