When looking for the best shares to buy, I paradoxically find myself looking at the worst performers.
Picking stocks that have fallen out of favour can sometimes yield bargains. Sometimes not. Three FTSE 100 stocks have taken a beating in February. Are they worth considering next month?
Annoyingly, I own two of them. The first is spirits giant Diageo (LSE: DGE), which fell another 14.5% in February, the worst showing on the blue-chip index. Having averaged down before, I’m wary.
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Diageo shares are falling again
The spirits giant has been struggling for a while. Its shares are down 30% over one year and 40% over two.
They’re now the cheapest I’ve seen, with a price-to-earnings (P/E) ratio of 15.5. The usually low yield is now nudging 3.7%. Yet investors have been reluctant to take advantage, as Diageo battles falling demand in key markets, stock inventory issues and Trump tariffs, which menace its tequila and Canadian whisky portfolios.
If I hadn’t thrown so much at the stock already, I’d be tempted. It does own Guinness after all. And maybe Gen Z will start drinking again, if the economy puts more money in their pockets. I’ll hold, but won’t buy.
The WPP share price has also taken a hit
Advertising giant WPP (LSE: WPP) has been struggling for years but matters got worse on 27 February when disappointing Q4 results hammered the stock. The WPP share price fell 13% over February and is down 10% over one year.
The global downturn has hammered client spending. UK revenues fell 5.1% in Q4, while North American revenues slipped 1.4% and Chinese revenues crashed more than 20%.
Headline operating profit did rise 2% to £1.71bn while free cash flow improved to £738m, but a downbeat 2025 outlook confirmed the gloom.
Last time I looked at WPP, it had a hefty P/E of around 70. That’s suddenly below 13 times. The yield now stands at more than 6%. The board is also battling to streamline operations, and is investing heavily in AI to boost productivity.
I’m tempted but won’t buy in March. I think the WPP recovery is still some way off.
Glencore shares have inflicted more pain
I don’t own WPP but do hold mining firm Glencore (LSE: GLEN). Which means I’m smarting from the 12% drop in its share price in February. It’s down almost 15% over 12 months.
That’s mostly due to falling demand for commodities from struggling China. Yet China is picking up this year, and it hasn’t helped. Nor did reports that Glencore may shift its listing to New York.
On 19 February, Glencore posted a 16% drop in adjusted 2024 earnings to $14.36bn. Revenue did rise 6% to $231bn, but adjusted operating profits still tumbled 33% to $7bn.
I’ve heavily down on Glencore but won’t be bailing out. Natural resources is a cyclical sector and it should recover at some time. Plus the board planning $1.2bn in dividends and a further $1bn share buyback before 6 August.
Net debt is a concern. That’s up from $4.9bn to $11.2bn, following significant capital spend and acquisitions. If I’m brave enough, I’ll buy more in March. I expect a bumpy ride.
