It’s been a pretty underwhelming start to 2024 for the UK stock market. Then again, I’m going to treat this as any Fool should: an opportunity to furnish my Stocks and Shares ISA with high-quality stocks going cheap.
Resistance is futile
Spirit seller Diageo (LSE: DGE) is one candidate. Its share price continues to fall on concerns of slowing sales as the cost-of-living crisis rumbles on.
So far, I’ve managed to resist buying. But I’m not sure for how long I’ll be able to hold off if I can find the cash. Today, I can snap up a slice of this bluest-of-blue-chips for 16 times forecast earnings.
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No, that’s not cheap relative to the market. But it is cheap compared to 24 times earnings, which is this FTSE 100 juggernaut’s average price tag over the last five years.
Rather than comparing it to a bunch of very different businesses, this is the sort of ‘value’ I prefer to look for.
Sure, the downward pressure may continue if interest rate cuts are pushed back. Heavy spending on the premium tipples offered by Diageo isn’t a priority for most of us when there are mortgages to pay.
But unless the economic cycle is broken for good, I’m confident sales will begin moving in the right direction when we’re all a bit more, well, confident.
And there’s a nice 3.7% yield on offer in the meantime.
Ready to recover
Another FTSE stock I’m interested in acquiring is investment platform provider AJ Bell (LSE: AJB).
Its share price has been volatile of late after the Financial Conduct Authority’s ‘clarification’ (warning) on how it expected the company and its peers to treat interest paid on cash balances in clients’ accounts.
Even so, I remain bullish on the outlook for this stock, especially given January’s trading update.
Reporting an “excellent start to the financial year“, the FTSE 250 member saw net inflows of £1.3bn in Q1. That’s 63% up on the same quarter one year earlier.
To me, this sends a message that economic pessimism is ebbing among private investors.
Again, a price-to-earnings (P/E) ratio of 17 looks decidedly ‘meh’ compared to other stocks. But this is far below AJ Bell’s five-year average of 38!
While further financial headwinds could delay the recovery, I think this could be another bargain buy as it stands.
Drop overdone?
Rounding things off is pest control giant Rentokil Initial (LSE: RTO).
Down 20% in the last year, this is one company many investors seemingly don’t want to touch. And I can see why.
It’s not just that the idea of owning a hygiene business isn’t as enticing as piling into the next tech ‘unicorn’; it’s that recent trading in North America has been softer than expected.
Of course, there’s a danger things could get worse. Traders are also concerned the company may be losing ground on US peer Rollins.
However, I wonder if this is priced in. Rentokil trades on a P/E of 17 — far below its five-year average of 35 (which, I concede, looks excessive).
A quick recovery might be asking for too much. But I’m tempted to begin building a position here, especially if management does what is necessary to take the fight to its rival.
