Yesterday’s market turbulence threw up plenty of opportunists for value investors with a long-term investment horizon. Here are five top picks.
Misunderstood
Amec Foster Wheeler (LSE: AMFW) is one of London’s most misunderstood companies. As an engineering company with ties to the oil sector, investors have turned their backs on Amec, believing that the company’s earnings will slump along with the price of oil.
However, Amec continues to win new engineering projects both in, and outside the petroleum sector. Revenue dipped by 0.9% during the four months ending April 2015, but the group’s order book increased to £6.7bn, which is more than a year’s worth of revenue.
What’s more, Amec’s low valuation fails to take the company’s robust order backlog into account. The company currently trades at a forward P/E of 10 and supports a yield of 6.2%.Â
Time to buy
I recently advised selling BAE (LSE: BA), because the company looked expensive compared to its international peer group. But after recent declines, BAE now looks to be cheaper than its international peer group.Â
For example, BAE’s main peers, the likes of General Dynamics, Lockheed Martin, Northrop Grumman and Raytheon Co, trade at an average forward P/E of 14.5 compared to BAE’s forward P/E of 11.5. Further, BAE currently supports a dividend yield of 4.7%, and the payout is covered 1.8 times by earnings per share.Â
Defensive play
Shares of A.G. Barr (LSE: BAG), the soft drinks group, have declined by around 20% over the past six months, presenting an attractive opportunity for value investors. Barr is a slow-and-steady growth stock. During the past three years, pre-tax profit has increased by a third and earnings per share are forecast to rise by 6% per annum for each of the next three years.
Unfortunately, as A.G. is a defensive business with years of steady growth ahead of it, the company’s shares trade at a premium to the wider market. Still, A.G.’s shares are now cheaper than they have been at any point during the past year. The company currently trades at a forward P/E of 19.6 and supports a dividend yield of 2.1%.Â
Chinese exposure
Burberry (LSE: BRBY) has lost a third of its value since the end of February as investors fret about the company’s exposure to China. Indeed, according to City figures, Burberry’s earnings will stagnate this year but for investors with a long-term outlook now is the perfect time to buy Burberry’s shares. Â
Burberry’s shares are cheaper now than they have been at any point during the past decade. In particular, Burberry currently trades at a forward P/E of 17.8, compared to its ten-year average of 19.5.
City analysts expect the company to return to growth next year, and this should send Burberry’s valuation back to its ten-year average. Burberry’s shares currently support a dividend yield of 2.7%.Â
Record growth
Johnson Matthey’s (LSE: JMAT) growth is expected to slow to a crawl this year. Nevertheless, over the past five years the company has achieved one of the best growth records of any FTSE 100 company.
Johnson Matthey’s earnings per share expanded 52% since 2011, and with this record of growth behind it, the company’s shares have traditionally traded at a high valuation.
However, like Burberry, after recent declines Johnson Matthey’s shares are now cheaper than they have been for five years. The company currently trades at a forward P/E of 14.7.Â