One technique I use to hunt for the best shares to buy now is to look at the biggest fallers over the last month. I sometimes find bargain stocks hidden down among the problem shares.
Several popular shares crashed in August. I’ve been taking a fresh look at three of these companies to see if I think they offer buying opportunities.
Down 57%: this isn’t a game
Spot the ball competition operator Best of the Best (LSE: BOTB) is known for the expensive cars it offers to winners of its weekly contests. Profits tripled last year when players were stuck at home in lockdown. But August was a bad month for this company.
BOTB shares fell by more than 50% in one day after the company said that falling sales and rising costs mean that profit for the current financial year is expected to be 62% below previous broker forecasts.
Unsurprisingly, the company says that some customers are playing less now that Covid-19 restrictions have been lifted. Alongside this, advertising costs to attract new customers have risen by up to 60%. As a result, fewer new players are being signed up.
Many shareholders are also disappointed that the company directors sold £60m of stock in April, just before the problems started. Did they know already?
BOTB shares now trade on 12 times 2022 forecast earnings and the group has no debt. The shares could be cheap, but I don’t think they’ll return to their previous highs. I’m not tempted to buy just yet.
The best UK share to buy now?
FTSE 250 personal protection technology specialist Avon Protection (LSE: AVON) was also a big faller in August. The shares fell by 28% in one day and are now down by 50% over the last year.
The crash was triggered by news that the company — which makes products such as military gas masks and helmets — is suffering from delayed orders and supply problems. As a result, sales will be lower than expected this year.
This is a business I’ve previously rated highly, so I am interested. As far as I can see, Avon’s problems should be temporary. The group is continuing to win new work with key customers such as the US military and management is confident that “delayed orders will be received over the coming months”.
Avon shares now trade on around 19 times 2022 forecast earnings, with a 1.7% dividend yield. That seems about right to me — Avon previously looked very expensive, in my view. I’d like to own the shares, but I’d like to get them a bit cheaper, so I’ll hold fire for now.
Disappointing drilling data
The final stock I’m looking at is explorer Helium One Global (LSE: HE1). Shares in this small-cap fell by nearly 70% last month after the company reported disappointing drilling results from its Rukwa project in Tanzania.
Chief executive David Minchin says that the company has now ended its 2021 drilling programme and is working on plans for 2022. I think there’s still some potential here, and fortunately Helium One still has £10m of cash on hand.
However, small explorers with no revenue are always high-risk speculative investments. These early disappointments have made me even more cautious. I certainly don’t think this is one of the best shares to buy now — I think the shares could have further to fall. I’m not buying.