2 beaten-up FTSE 100 stocks: is now the time to buy?

Edward Sheldon looks at two FTSE 100 (INDEXFTSE:UKX) stocks that are way off their highs. Are these stocks now bargains?

| 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.

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.

Buying high-quality stocks when they’re out of favour is an investment strategy that can generate powerful returns over the long term. With that in mind, today I’m looking at two FTSE 100 companies that have seen their share prices decline significantly in recent years. Is now the time to jump on board?

Whitbread

A few years ago, Whitbread (LSE: WTB) shares were in hot demand. A near 50% rise in sales in just three years saw shares in the owner of Costa Coffee and Premier Inn shoot up from around 1,500p to almost 5,500p between 2012 and early 2015. However, since then, the stock has pulled back significantly, and today, can be bought for under 3,800p. Why the drop? 

In recent years, investors have been concerned that the company’s best growth is behind it. Brexit uncertainty has also spooked the market. Do those concerns have merit? Let’s take a look at today’s half-year results for a clue.

Should you invest £1,000 in Taylor Wimpey 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 Taylor Wimpey made the list?

See the 6 stocks

Whitbread’s interim results released this morning look robust, in my view. For the half year to 31 August, revenue increased a healthy 7.4% to £1,671m and profit before tax climbed 6.7%. The company registered a 7.4% increase in underlying basic earnings per share to 143.7p, and declared a dividend hike of 5%. During the half year, over 2,000 new Premier Inn rooms were opened in the UK. Chief Executive Alison Brittain, commented: “Although we remain cautious on the current environment, we are confident that ongoing disciplined allocation of capital and focus on executing our plans will deliver long-term growth in earnings and dividends and a strong return on capital.

The market is clearly unimpressed with these numbers, and the stock is down almost 5% as I write. However, for long-term investors, I believe the current valuation is attractive. Whitbread’s forward P/E now stands at 14.8, which looks reasonable for a company forecast to generate sales growth of 8% and 7% this year and next. A prospective dividend yield of 2.6% is also on offer. For investors looking for a stock that could offer both long-term capital growth and dividends, Whitbread has potential, in my view.

Shire

Shares in biotech specialist Shire (LSE: SHP) have followed a similar pattern to that of Whitbread in recent years. Between mid-2013 and mid-2015, Shire shares leapt from 2,000p to 5,700p, but since then, they’ve pulled back considerably to 3,670p. Does the stock now offer value?

An investigation into Shire’s share price weakness reveals two main concerns. First, it appears that with generic competitors looking to capture market share, the market is concerned about growth potential going forward. Second, after the $32bn acquisition of Baxalta, the company’s debt levels have increased significantly. Total long-term debt on the balance sheet surged from $82m in 2015 to $20bn in 2016. That clearly adds an element of risk to the investment thesis.

On a forward P/E ratio of just 9.7, Shire shares certainly look cheap, although with the high debt levels and a dividend yield of just 0.7%, I’ll admit that I’m not blown away by the investment case for the pharmaceutical stock. 

AI Revolution Awaits: Uncover Top Stock Picks for Massive Potential Gains!

Buckle up because we're about to dive headfirst into the electrifying world of AI.

Imagine this: you make a single savvy investment in some cutting-edge technology, then kick back and watch as it revolutionises entire industries and potentially even lines your pockets.

If the mere thought of riding this AI wave excites you and the prospect of massive potential returns gets your pulse racing, then you’ve got to check out this Motley Fool Share Advisor report – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And here’s the kicker – we’re giving you an exclusive peek at ONE of these top AI stock picks, absolutely free! How’s that for a bit of brilliance?

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.

Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has recommended Shire. 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

Older couple walking in park
Investing Articles

Could £300 a month invested in US and UK shares reach a million by retirement?

Could an investor retire with a million pounds just by dedicating £300 a month to US and UK shares? Mark…

Read more »

Young Caucasian man making doubtful face at camera
Investing Articles

Is £800 enough to start an ISA?

Is it worth bothering with an ISA with less than £1,000 to spare? This writer believes it may be --…

Read more »

Investing Articles

3 reasons Tesla stock may be a long-term bargain

This writer is keen to buy Tesla stock at the right price. He doesn't think it's there yet -- but…

Read more »

Investing Articles

Nvidia stock is a lot cheaper than before – or is it?

Nvidia stock has been caught in the whirlwind of market volatility. This writer has been waiting to buy, so might…

Read more »

Top Stocks

3 FTSE stocks Fools are eyeing up for choppy markets

A selection of companies listed on the UK stock market on the watchlists of four Foolish investors.

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

A £10,000 investment in Rolls-Royce shares last week is now worth this…

Harvey Jones says Rolls-Royce shares couldn't escape the volatility of recent weeks, but wonders if the recent dip is a…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

Prediction: in 2 years these S&P 500 stocks will be much higher than they are today

These two S&P 500 stocks have been beaten down in recent weeks. But Edward Sheldon expects them to move much…

Read more »

Investing Articles

10% yields! Why a volatile stock market is great news for passive income investors

The recent stock market volatility has given passive income investors the chance to earn double-digit returns. But they still need…

Read more »