As a veteran value investor with 35 years of investing experience, I much prefer to buy cheap shares. For me, these are stocks with low price-to-earnings ratios, high earnings yields, and above-market dividend yields. Thus, I generally steer clear of go-go growth stocks and racy risk shares. Then again, sometimes I’m drawn to ‘fallen angels’. These are FTSE 100 shares that have dived in value and, therefore, could be ripe for recovery. In the past 10 days, I have written about two potential recovery plays that quickly went wrong, badly wrong. Here are two battered FTSE 100 stocks that both crashed within days of me writing about them.
FTSE 100 flop #1: Evraz
The top of my FTSE 100 flops for 2022 is Evraz (LSE: EVR). This global steelmaker and miner has operations in Russia, North America, and Canada (note Russia is in bold). Evraz’s main outputs include steel, iron ore, coal, and vanadium — prices of which have soared in 2021-22. Evraz was founded in 1992 and its biggest shareholder is Russian billionaire Roman Abramovich (owner of Premier League team Chelsea FC). At their 52-week high, Evraz shares hit 707.6p in May 2021. When I wrote about this stock a week ago, it stood at 306.7p. When I covered Evraz earlier, on 15 February, its shares stood at 326.6p.
Yesterday, Evraz shares fell to a low of 160p, before closing at 171.25p. As I write, they hover around 205.1p (+20% today), valuing the group at £3bn. After crashing spectacularly, the share now trades on 2.7 times earnings and an earnings yield of 37.8%. Evraz’s dividend yield has exploded to 40% a year (10 times the FTSE 100’s cash yield). Of course, now that Russia has invaded Ukraine, these figures may be mere fantasy. With western nations keen to punish President Vladimir Putin and his Russian oligarchs, all bets are off. One British MP has already called for sanctions to be imposed on Roman Abramovich. Hence, though Evraz shares may well recover in future, I regard them as uninvestable right now. Far too risky for my blood!
Crashed stock #2: Polymetal International
My second battered stock is Polymetal International (LSE: POLY), which I wrote about in the 15 February article above. Like Evraz, Polymetal has major operations in Russia. It is an Anglo-Russian miner of gold and silver, registered in Jersey and with headquarters in Cyprus. When I wrote about this FTSE 100 stock 10 days ago, it stood at 1,124.5p, valuing the miner at £5.3bn. At yesterday’s low, POLY had crashed to 503.83p, before leaping to close at 682.4p.
As I write, the share hovers around 728p, up 45.6p (+6.7%) today, valuing the miner at under £3.5bn. This leaves Polymetal shares trading on 4.2 times earnings, for an earnings yield of 23.8%. Its dividend yield has blown out to 13.3% — over 3.3 times cash yield. Again, I can’t rely on these figures right now. Even though the prices of gold and silver have risen in early 2022, Polymetal faces the same geopolitical risks as Evraz. Investors much braver than me may buy at these levels, but I won’t. After Putin’s latest actions, all Russia-related stocks are dead to me — for 2022, at least.