In his 1986 letter to Berkshire Hathaway’s shareholders, Warren Buffett wrote: “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful”.
With Donald Trump’s ‘Liberation Day’ causing havoc with global equity prices, I think it’s a good time to keep the American billionaire’s quote (Buffett’s not Trump’s) at the forefront of our minds.
Opportunities galore
The fear that’s currently affecting markets means, in my opinion, there are plenty of bargains to be had. And if investors pick wisely, in five years’ time, they could be applauding their bravery.
After all, it’s easy to forget that five years ago, the UK was in lockdown and the stock market tanked. Those who followed Buffett’s advice and, at the time, bought the stocks of “companies with good economics and good management” that were trading below their “intrinsic business value” have done well.
I’m not comparing today’s economic outlook with the pandemic. But investor nervousness can be profitable.
If only…
In April 2020, with very few people flying, Rolls-Royce Holdings‘ share price fared particularly badly. However, five years later, its stock has increased seven-fold.
Centrica’s shares have risen nearly 350% over the same period. In 2020, energy prices hit rock bottom as global demand collapsed.
And Britain’s banks, which tend to act as a barometer for the wider economy, saw their stock market valuations slide. As an example, NatWest Group‘s now worth three times more than it was half a decade ago.
All three of these companies are well-managed and have strong brands. And given the recent fallout from President Trump’s desire to ‘Make America Wealthy Again’, I think now could be a good time to consider JD Sports Fashion (LSE:JD.), the FTSE 100’s ‘King of Trainers’. Remember, in five years’ time, Trump will (probably!) have left office.
Tracksuits and trainers
The sports retailer’s shares are currently (4 April) trading very close to their 52-week low. In fact, they’re changing hands for less than at the start of the pandemic, when its stores were forced to close.
The problem is that around half of the group’s revenue comes from the sale of Nike’s products. Most of these are made in Asia which means they now face substantial tariffs when imported into America, where JD Sports recently bought Hibbett.
There are also fears that a global trade war will make everyone poorer.
But the company looks incredibly cheap to me. For the year ended 25 January (FY25), analysts are expecting earnings per share (EPS) of 12.2p. We will know next week how accurate this is. But if the ‘experts’ are right, it means the stock’s trading on just 5.5 times earnings.
However, it’s the future that counts. At the moment, analysts are expecting EPS of 12.3p for FY26. But even if the current uncertainty reduces this by 25%, the stock’s multiple (7.3) is still comfortably below its historical average.
But I’m not expecting such a dramatic impact. Sportswear remains popular with younger shoppers and the group sells other non-American brands. Also, sales on the other side of the Atlantic account for a small proportion of group revenue. On balance, I think JD Sports Fashion could be a stock for ‘greedy’ long-term investors to look at.
