Down 53% in a year! I reckon this oversold FTSE 100 stock is now ripe for a comeback

This FTSE 100 stock has fallen out of fashion with investors, but Harvey Jones reckons the sell-off has gone too far and is getting ready to buy it.

| 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.

Young Black man sat in front of laptop while wearing headphones

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.

I love scouring the market for oversold FTSE 100 stocks and I think I’ve found a brilliant one that I’m desperate to add to my portfolio.

It’s always a bit risky buying stocks that most investors can’t wait to sell, but it has several advantages. First, it reduces the risk of me overpaying for froth. Second, it means I pick up the shares on the cheap. Third, I typically get a higher yield too.

The big risk is that when stocks plunge, there’s usually a good reason. Turning round a struggling company takes time. It’s not an overnight task, as I’ve discovered in the past. I’ll need bags of patience.

Should you invest £1,000 in BP right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if BP made the list?

See the 6 stocks

Out of fashion

Yet I think luxury fashion group Burberry (LSE: BRBY) has fallen too far, too fast and now looks like a good time to grab it at a bargain price.

In November, Burberry shocked markets with a profit warning, as the cost-of-living crisis hit demand. It doubled down on the gloom in January, downgrading operating profits guidance from a range of £552m to £668m to between £410m and £460m.

Shoppers are reluctant to cough up £1,890 for a classic heritage trench coat or £420 for one of its signature scarves, which I get. It’s not the only luxury specialist having a tough time. Even French giant LVMH has suffered from falling demand in Europe and China. Its shares are down 10.96% in a year, but that’s nothing compared to Burberry’s 53.11% plunge.

Created with Highcharts 11.4.3Burberry Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Across the FTSE 100, only St James’s Place has done worse, but unlike Burberry, it’s the architect of its own misfortune.

Luxury brands are often seen as recession-resistant, because the super wealthy typically glide through the ups and downs of the economic cycle. Yet Burberry isn’t quite at that level. Its market includes a lot of aspirational shoppers, those who like high-end products but do have to think twice about the price. Their numbers can thin out when the economy struggles.

It will bounce back in style

Yet that 50% share price crash seems extreme. Year-on-year sales only fell 7% in the 13 weeks to 30 December, to £706m. We’ll know more on Wednesday (15 May), when full-year results are published. 

If they’re only slightly better than expected, the Burberry share price could jump. It’s already cheap enough for me to buy though, trading at just 9.43 times trailing earnings. The trailing yield is now 5.19%. For years, Burberry was valued at around 24 times earnings, and yielding barely 2%. Now looks like a good entry point.

Yet most brokers don’t expect a positive surprise on Wednesday. That’s fine by me. I don’t buy out-of-favour shares in the hope of making an overnight fortune when markets suddenly catch up with my brilliant insights. I’m not brilliant. I’m average at best.

My secret weapon is that I buy with a minimum five-year view. I think that in that time, there’s a pretty good chance Burberry will piece itself together and investors will take a more positive view.

While I wait for the recovery, I’ll reinvest my dividends to build my position. Burberry remains a strong brand and I reckon it will get that re-rating, given time.

But there may be an even bigger investment opportunity that’s caught my eye:

Investing in AI: 3 Stocks with Huge Potential!

🤖 Are you fascinated by the potential of AI? 🤖

Imagine investing in cutting-edge technology just once, then watching as it evolves and grows, transforming industries and potentially even yielding substantial returns.

If the idea of being part of the AI revolution excites you, along with the prospect of significant potential gains on your initial investment…

Then you won't want to miss this special report inside Motley Fool Share Advisor – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And today, we're giving you exclusive access to ONE of these top AI stock picks, absolutely free!

Get your free AI stock pick

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.

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Burberry Group Plc. 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

Thoughtful man using his phone while riding on a train and looking through the window
Investing Articles

£100, £1,000, or £100,000? Here’s how much it takes to start investing in shares!

Does it take a large sum of money for someone to start investing in the stock market? Our writer doesn't…

Read more »

Close-up of a woman holding modern polymer ten, twenty and fifty pound notes.
Investing Articles

£20,000 in an ISA? Here’s how it could target £1,250 a month in passive income

A Stocks and Shares ISA can be a platform for someone with spare cash to set up a sizeable second…

Read more »

Close-up as a woman counts out modern British banknotes.
Investing Articles

3 UK shares I own for easy passive income

Christopher Ruane runs through a diverse trio of UK shares he currently owns, each of which generates passive income in…

Read more »

UK coloured flags waving above large crowd on a stadium sport match.
Investing Articles

Is the UK-US trade deal a brilliant buying opportunity for FTSE 100 shares?

A long-awaited trade deal has been struck between the UK and the US, but how much will FTSE 100 stocks…

Read more »

UK supporters with flag
Investing Articles

3 growth stocks up 27% in a month to consider buying now

Stock market volatility has been a brilliant opportunity to buy growth stocks, which are now rebounding at speed. Harvey Jones…

Read more »

Young happy white woman loading groceries into the back of her car
Investing Articles

This FTSE 250 stock has returned over 300% since 2020

After missing out on a 300% return from a FTSE 250 stock five years ago, Stephen Wright is ready for…

Read more »

Investing Articles

Is this one of the most undervalued stocks on the London Stock Exchange?

A market-beating investment manager has just unveiled some of his latest buys from the London Stock Exchange. And this is…

Read more »

Business manager working at a pub doing the accountancy and some paperwork using a laptop computer
Investing Articles

Forget side hustles! This is how I’m building a second income from stocks

Motley Fool analyst Zaven Boyrazian explains his strategy for building a substantial second income in the long run with British…

Read more »