There are times when investing in stocks can be unsettling such as last week when the UK market followed other global indexes down. But to patient investors, the falls could present an opportunity to buy high-quality companies at a better price. That’s the upside of volatility.
Fever time
One high-flying stock that was hit hard in the panic was Fevertree Drinks (LSE: FEVR). This investor favourite has produced massive investor returns since its IPO back in late 2014. A sharp deterioration in the share price that preceded last week’s market turmoil has accelerated and now this high-growth company is more affordable than it has been at any other time in the last three months.
Although it’s said that investors should never try and catch a falling knife and despite the fact Fevertree was already falling prior to the slump, it is nonetheless a stock with huge future potential. Hence the high price-to-earnings ratio. One of the directors certainly has seen the share slide as an opportunity. Kevin Havelock, a non-executive director of the company and a Unilever veteran, bought a total of 8,240 ordinary shares at a volume weighted average price of 2,948p.
Double whammy
Hays (LSE: HAS) was another stock hit harder than most by the market slump. In just the last week, the share price, which had been enjoying a strong run, has fallen by over 25%. Hays suffered more than most because it also released disappointing news during the week so saw a double whammy which may now create an opportunity for investors.
The company revealed net fee income rose 9% on a like-for-like basis in the three months ended 30 September. This was 2% short of consensus forecasts. Investors were also concerned by a slowdown, blamed on Brexit concerns, of net fees which dropped to 3% growth from 5% previously.
The steep fall in the share price means now could be an attractive entry point for investors, especially given the company’s strong performance outside the UK, such as in Germany where it recorded a 13% rise in like-for-like sales.
Brexit issues
It’s been a tough year for house-builders and Telford Homes (LSE: TEF) is no exception. The company recently warned investors that negative Brexit sentiment was affecting the housing market, with potential buyers waiting to see how the UK’s exit from the EU next March goes before making any commitment.
Focusing on London residential development, Telford is particularly vulnerable to any slowdown in the London housing market and from lower demand for expensive homes. Indeed, it said sales of £600,000+ homes had become more challenging and taken longer to secure.
But for investors comfortable with above-average market volatility and the cyclical nature of house-builders, Telford seems worth considering, especially after the latest hit to its share price. House-builder share prices are being hit by negative investor sentiment and Brexit fears. For investors willing to take a long-term view and particularly after the latest fall, it could be worth further investigation. Increasingly, the risk is being priced into the share, so investors would be taking on less risk.
One of the best ways to grow wealth is through long-term investments in stocks. Investors should look beyond short periods of market volatility and take advantage of the opportunities that sharp downturns create.