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 Crown Place Vct Plc 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 Crown Place Vct Plc 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. 

But there may be an even bigger investment opportunity that’s caught my eye:

Investing in AI: 3 Stocks with Huge Potential!

🤖 Are you fascinated by the potential of AI? 🤖

Imagine investing in cutting-edge technology just once, then watching as it evolves and grows, transforming industries and potentially even yielding substantial returns.

If the idea of being part of the AI revolution excites you, along with the prospect of significant potential gains on your initial investment…

Then you won't want to miss this special report inside Motley Fool Share Advisor – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And today, we're giving you exclusive access to ONE of these top AI stock picks, absolutely free!

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.

Our best passive income stock ideas

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

Investing Articles

Prediction: 12 months from now, £5,000 invested in Tesla stock could be worth…

Tesla stock has endured a miserable year so far, falling by 29%. Muhammad Cheema takes a look at how it…

Read more »

Investing Articles

See what £10,000 invested in Tesla shares at their mid-December peak is worth today 

As the world absorbs the full scale of Donald Trump's tariffs, Tesla shares are reeling. Investors who bought the stock…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Dividend Shares

2 ‘safe’ LSE dividend stocks to consider as global markets sell off

As global markets experience high levels of volatility due to economic uncertainty, investors are piling into these ‘safe-haven’ dividend stocks.

Read more »

Investing Articles

US stock market rout: an unmissable opportunity for investors?

His tech-heavy portfolio has been smashed by Trump’s tariffs. However, Dr James Fox believes there could be some opportunities in…

Read more »

Investing Articles

After a 13% ‘Trump tariff’ fall, is the Barclays share price too cheap to miss?

Does the Barclays share price fall mean we should all panic and run screaming from the stock market? Nah, of…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

2 investment trusts to consider for a Stocks and Shares ISA

These two investment trusts have a different focus -- but our writer sees both as worth considering, one more for…

Read more »

Investing Articles

Deutsche Bank reiterates Buy rating on 9.6% yielding FTSE 250 stock that was “most shorted in UK”

Our writer investigates why a major broker remains optimistic about a FTSE 250 stock that was once the most shorted…

Read more »

Investing Articles

2 things to remember when stock markets are turbulent

US trade policy has rattled the stock markets in New York, London and elsewhere. Our writer outlines a couple of…

Read more »