Itâs never pleasant to watch the share prices of relatively new investments take a dive. After all, youâve done the necessary research, looked at future prospects and youâre satisfied that management seems to know what its doing. You may even be willing to overlook the massive remuneration that some executives in certain companies receive.
The brutal truth is that the market doesnât care about us or when we invested. And thatâs fine. As private investors, we all have an edge that fund managers donât, namely time. Share prices can drop for reasons outside of a company’s control but if the investment story still holds and a need for cash isn’t forcing your hand, it makes sense to hang on and allow the market to realise the business’s true value. Today, I’ll be looking at two companies that have seen recent price declines and why I’m content to do absolutely nothing in the short term.
Just turbulence?
Shares in Easyjet (LSE:EZJ) have declined from 1866p in March 2015 to 1470p today, a drop of over 21% in roughly 14 months. Ordinarily, this would suggest that a company has come unstuck. So let’s check the latest half-year report, released on 10 May. Â
Revenue was very slightly up to ÂŁ1,771m and passenger numbers grew 7.4% to 31m. The load factor was stable at 89.7%. According to the board, this positive set of figures indicates that the £5.8bn cap is “well placed to grow revenue and profit this financial year and deliver sustainable returns and growth for shareholders.” While a recovery in the oil price won’t be welcomed by this or any other airline, these figures don’t indicate a struggling business. An increase in the dividend was also great news for shareholders. Offering a yield of 4.5%, this share still holds plenty of appeal for me.
Viva Aviva!
Aviva (LSE:AV), the ÂŁ17bn cap life insurer and asset manager, has been turning around for so long itâs perhaps understandable if investors are feeling a little dizzy and frustrated. While the red figure in my portfolio isnât pleasant to look at (which highlights why we shouldnât look at our holdings too often), I’m staying invested. CEO Mark Wilsonâs strategy and the integration of Friends Life seems to be working. In March, Aviva reported a 20% rise in operating profit and welcomed ÂŁ625m in new business from the UK and Ireland. Like Easyjet, it’s also shown commitment to growing its dividend with a rise of 15% on last year’s final payout. With interest rates on cash deposits still punishingly low, investors looking for income may be tempted to add Aviva to their holdings and I wouldn’t blame them.Â
Holding the line
The recent volatility in the share prices of Easyjet and Aviva is unwelcome. However, Iâm sticking by these FTSE100 giants for now. Both companies offer generous, growing, yields that are easily covered by earnings and are run by experienced boards. Both also appear to have solid, achievable, goals for the future.
Indeed, if youâre considering investing in either company, now may be as good a time as any to do so. Easyjetâs shares currently trade on a forecast P/E ratio of a little over 9, according to Stockopedia. Avivaâs stock is even cheaper at just under 9. Based on the belief that a P/E ratio of around 15 offers fair value, both companies should be attractive to investors content to give their holdings time to breathe.