Investors in some FTSE 100 stocks can’t catch a break. In fact, the fragile economic and geopolitical environment has now pummelled the share prices of a fair number of our biggest companies to 52-week lows.
Today, I’m looking at three examples and asking whether any are too cheap to resist.
Weak demand
Specialty chemicals manufacturer Croda International (LSE: CRDA) is having an exceedingly poor 2023 with the stock down nearly 40%.
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Is the drop overdone? Possibly. This company possesses a strong balance sheet and a history of generating above-average margins. Croda also has a good track record when it comes to hiking its annual dividends, even if the current yield (2.5%) isn’t particularly chunky.
Then again, the recent cut to its annual profit outlook due to lower demand across its businesses is rather concerning. Adjusted pre-tax profit of £300m-£320m is now expected, down significantly from £370m-£400m.
Taking this into account, a price of 24 times FY23 earnings for the shares still looks steep.
On the other hand, this is lower than Croda’s five-year average price-to-earnings (P/E) ratio of nearly 31. So, maybe the stock is more of a bargain than it looks.
Given just how huge that reduction in guidance was, however, this firm goes on my watchlist for now. If I were to eventually buy, it may be psychologically easier to build a stake gradually.
Great value?
Investment platform provider Hargreaves Lansdown (LSE: HL) is another FTSE 100 company in a spot of bother. Despite the odd fleeting burst of positive momentum in the last year, shares have hit a fresh 52-week low.
This makes sense. Regardless of how well it has scored on quality metrics in the past, the abundance of bearishness in the markets was never going to be good for business or sentiment.
The recent trading statement bears this out. Growth in client numbers in Q1 was negligible, if understandably so.
On the flip side, I firmly believe that an ageing UK population will serve as a long-term growth driver for Hargreaves as more of us seek to get our savings in order. While the £3.3bn cap isn’t short of competition, that bodes well for a recovery.
It might not be a comfortable ride initially but a P/E of 11 (compared to a five-year average of 26) is very enticing too.
I may not be able to resist this one.
Profit warning
A third stock hitting a 52-week low recently is B&Q owner Kingfisher (LSE: KGF).
Again, this really doesn’t come as a surprise. While the company enjoyed a purple patch during lockdowns, it’s inevitable that some DIY and gardening projects are put off during a cost-of-living crisis. Tellingly, annual profit is now expected to be 7% lower than previously predicted.
Is a lot of negativity priced in? A P/E of just under nine certainly feels cheap at face value. The 5.9% dividend yield also packs a punch for income investors.
However, I’m still wary. With inflation recently coming in slightly higher than expected, the risk/reward trade-off here still looks unfavourable. Knowing that the company is the third-most shorted stock in the UK market (two places higher than Hargreaves Lansdown) is hardly encouraging either.
I’m steering clear until I see clear evidence that momentum has reversed.
