After jumping 10% this morning is this hated FTSE 100 stock suddenly a screaming buy for me?

Harvey Jones rejected any thought of buying this former FTSE 100 darling in August but after some positive news should he now revise his opinion?

| More on:
Couple working from home while daughter watches video on smartphone with headphones on

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.

On 14 August I looked at former FTSE 100 darling Reckitt (LSE: RKT) and cruelly declared I wouldn’t touch it with a bargepole.

I’ve been monitoring the consumer goods giant for years, because it has much to recommend it. Its brands are a rollcall of hygiene, health and nutrition household names including Air Wick, Calgon, Cillit Bang, Finish, Harpic, Nurofen, Vanish and many more.

Reckitt may be based in humble Slough but it sells its products in nearly every country in the world. Investors saw it as a solid defensive stock, with a reliable dividend and growth potential in the good times. Then its share price crashed by a third in just two years.

The share price has taken a beating

The reason? Legal issues in the US, a perennial problem for UK multinationals.

Reckitt’s ill-fated $16.6bn takeover of US-listed baby milk formula maker Mead Johnson Nutrition in 2017 lay at the heart of it. The board didn’t just overpay but acquired a legacy of legal claims, particularly over its Enfamil formula. 

In March, a court in Illinois awarded $60m in damages to a woman whose premature baby died after consuming Enfamil. This knocked £5.4bn off Reckitt’s share price in a day.

More than 1,000 similar claims have been in filed in US courts targeting both Reckitt and rival Abbott Laboratories. So when Abbott was forced to pay a total of $495m in July, after a US jury found its infant formula had caused a girl to develop a dangerous bowel disease, Reckitt fell too.

Bloomberg Intelligence estimated the firms faced a combined $2.5bn in liability exposure. Both companies argued the claims were flawed and not based on scientific evidence, but that’s down to the courts.

As if that wasn’t enough, a tornado hit production at Reckitt’s Mount Vernon facility in the US, and management uncovered accounting issues in the Middle East.

So even with the Reckitt share price at just 12.97 times earnings and yielding more than 4.5% in August, I didn’t want to know.

But finally, finally… some good news. Yesterday (October 31), a state court in St Louis, Missouri, rejected a case claiming that Mead Johnson and Abbott formulas caused serious inflammation of the bowel.

The shares look decent value

Reckitt’s shares jumped more than 10% in early trading today. They’re still down 14.87% over 12 months and look tempting at 14.45 times earnings and yielding 3.79%.

But you know what? I’m still not going to buy them.

Yes, the legal win was a positive but there are plenty more cases in the pipeline. And yes, production has recovered from the US tornado, plus Reckitt’s hygiene and health divisions are moving along nicely.

But sales aren’t exactly booming. Reported group net revenue is down 3.8% year-to-date, mostly due to adverse currency shifts and a small net impact from mergers and acquisitions.

Even if Reckitt was flying on every front, I still wouldn’t touch it until the legal shadow has lifted. I’m keeping my bargepole handy.

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 Reckitt Benckiser 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

artificial intelligence investing algorithms
Investing Articles

Down 12% in a month and yielding 10.7%! Is this November’s best passive income stock?

Harvey Jones has been building his stake in this ultra-high-yielding FTSE 100 passive income stock. And with its shares dipping…

Read more »

Investing Articles

With bad news about the ISA limit, here’s what I’d do

The Budget contained news about the ISA limit for annual contributions being held flat despite inflation. Here's how our writer…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Down 21%, is the Smith & Nephew share price too cheap to ignore?

The Smith & Nephew share price is trading at its cheapest for almost a year. Is now the time for…

Read more »

Investing Articles

3 shares I’d consider for a Lifetime ISA

Our writer picks a trio of shares he believes investors should consider for a Lifetime ISA, with a mixture of…

Read more »

Investing Articles

Here are the latest share price forecasts for BAE Systems

The BAE Systems share price has risen around 130% in the last three years. Can it go higher from here?…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Growth Shares

Down 45% in 2024, is the Burberry share price worth backing for 2025?

The Burberry share price has tanked this year, losing almost half its value. Is there potential for a massive rebound…

Read more »

Investing Articles

£8,000 in savings? Here’s how I’d aim for £2,300 a month in passive income

With simply a few thousand in savings and £200 a month to invest, Muhammad Cheema looks at a strategy to…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Up 17% in a day with a 6% dividend yield? I just had to investigate this unusual penny stock

It’s not every day you see a cheap penny stock with a decent yield and enjoy a sudden growth spurt.…

Read more »