Stock market volatility has thumped share prices across the board. The trick now is to work out which stocks are out for the count, and which can make a fighting comeback.
Aviva revival
I’ve been waiting years for my bet on insurance giant Aviva (LSE: AV) to pay off and my patience continues to be stretched, with the stock down 13% in the last month alone. The big insurers have shrugged off local threats, notably Chancellor George Osborne’s pension freedom reforms, but the global rout has punished prices across the sector, with Legal & General Group and Prudential down around 15% over the last month.
Solvency II regulations and the Brexit referendum have added to the uncertainty and investors can expect plenty more volatility. The share price slump has at least revived Aviva’s yield (now a solid 4.2% covered 2.7 times). Its valuation of just 8.9 times earnings would be exciting if I didn’t keep reading articles about how we’re heading for a global recession. Forecast earnings per share growth of 11% this year to 49.58p a share is promising. Aviva looks like a buy but I thought that four years ago. It may stretch your patience before the recovery comes.
Glencore holding
What a difference a week makes. Stricken mining giant Glencore (LSE: GLEN) is up 13% over the last five trading days and 18% over the month, as commodities took everybody by surprise (me included) by bouncing back into favour. I remain unconvinced by the rally as China isn’t out of the woods yet and nor is the global economy. I still don’t think this is the time to invest in a company carrying $30bn of net debt, which has forced management to launch a $13bn fundraising campaign to reassure investors.
Glencore guarantees plenty of excitement, and as we saw last week, the chance of making a fast buck for nimble/lucky traders. Commodities could get a further boost with the US dollar likely to weaken further as the steam goes out of its economy. Brokers are surprisingly positive about Glencore, with JP Morgan overweight with a 130p target and Credit Suisse neutral too with a target of 130p. That’s a near 25% upside on today’s 105p. I would urge caution on buying on the back of last week’s bounce. Do I smell a dead cat?
Banco bonanza
Bad news out of China is obscuring disastrous news from Brazil, perhaps the last major economy I would choose to invest in right now. There’s an ugly knock-on effect for Banco Santander (LSE: BNC) because Brazil is its second biggest market, generating around one fifth of its earnings. Santander still posted a 33% rise in full-year total attributable profit to âŹ1.63bn in Brazil, despite its troubles. It also put on a solid show in mature UK and Spanish markets and attracted another 1.2m customers across the business, for a total 13.8m.
Santander’s share price has been relatively stable over the last month, falling just 5%, against a drop of 18% at Barclays, 13% at Lloyds Banking Group and 10% at HSBC Holdings. Its price-to-book value of just 0.61 suggests there’s value to be had. These are also troubling times for banking stocks as we head for years of low interest rates, which gives them little scope to boost net interest margins, while impairments may finally start rising at some point. Santander has performed well, however, and its 5.14% yield is tempting.