At the beginning of each month, I always check my different stock market filters. Some of these are set up for screening top dividend shares, others more for growth. Yet one I always check is for companies that have fallen in value, with a low price-to-earnings ratio. As such, this aims to filter for cheap shares that I can consider buying for the new month.
A reputational wobble
One that has popped up is GSK (LSE:GSK). The pharma giant saw the share price drop 14% last month which acted to push the price-to-earnings ratio below 10 (my fair value benchmark).
Most of the drop came at the start of the month with news regarding its Zantac heartburn drug legal case. Around 70,000 cases have been brought forward claiming that the drug causes cancer, which if proven would have large reputational and financial implications. The stock dropped by 10% after the court ruled that jury trials could hear expert witnesses as part of the trial.
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Even though this situation is a risk, I think the stock has overreacted. The business has been around for decades and has successfully navigated problems like this in the past. I don’t see this being an issue if we fast forward a year. Even when I zoom out from the one month performance, I can see the stock’s still up 9% over the past year.
Further, GSK’s a profitable company that’s growing year on year. For example, versus 2022, the firm increased revenue, operating profit and pre-tax profit last year. This also helps the dividend payments. With a yield just shy of 4%, I think this could be a cheap share to snap up to benefit from both share price gains and income.
Trending lower, but not forever
Another option on my radar is Jupiter Asset Management (LSE:JUP). The stock dropped 11% over the last month, bringing the loss over the past year to 28%.
The business has struggled with the tough macro environment in recent years, alongside tougher competition in the investment management space. However, there comes a point where I think this becomes too cheap to ignore.
After all, total assets under management from Q1 increased to £52.6bn from £52.2bn the previous quarter. A good chunk of this was driven by positive market returns of the funds. Ultimately, the higher the assets under management figure is, the more fee driven revenue and commission Jupiter can earn.
I like the company because even with the difficulties that the whole sector has dealt with, it’s still profitable. Given that fact, I can still use the price-to-earnings ratio to get a feel for value. It’s currently at 5.22.
Of course, the risk here is that I buy now but the trend is still lower for the share price over the next year before it starts to rally. This is possible, but I struggle to see how much lower this can go, given that there are zero signs that the company is going bust anytime soon.
Overall, I’m thinking about buying both shares as we start the month.
