Every three months, the FTSE 100 and FTSE 250 indices are reshuffled. September’s changes will be announced this week.
According to Ben Laidler, Global Markets Strategist at eToro, “the biggest casualty is likely to be asset manager Abrdn“. Shares in this FTSE 100 firm have fallen by more than 40% over the last year.
If Abrdn is demoted to the FTSE 250, its 9.5% dividend yield could make it one of the highest-yielding shares in the mid-cap index. However, Abrdn’s payout isn’t covered by forecast earnings and I’m unsure how safe it might be.
Abrdn isn’t on my radar as a potential buy today. But I am interested in two of the other FTSE stocks flagged up by Laidler.
He thinks “other potential casualties are generic drug maker Hikma Pharmaceuticals (LSE: HIK) and kitchen-maker Howden Joinery Group (LSE: HWDN)“.
I’ve followed both companies for years and have a good opinion of them. Although they’ve often looked expensive to me, both stocks have fallen by around 35% so far this year. I think Hikma and Howden could be good long-term buys.
Hikma: temporary setback?
Hikma’s share price has now fallen by more than 50% since last summer. Much of this slump has been caused by problems in the group’s generics division. This produces cheaper alternatives to branded medicines whose patent protections have expired.
Generic sales this year have been hit by new product delays and tougher competition in key US markets. As a result, Hikma cut its profit guidance earlier this year. The group’s CEO resigned soon after.
However, Hikma’s injectables and branded medicine divisions are still performing well. At a group level, Hikma is expected to report flat sales and only a small decline in profit in 2022. Operating margins are expected to remain above 20%.
Hikma is currently being managed by executive chairman Said Darwazah. He’s a member of the company’s founding family, which owns 27% of its stock. I think Darwazah will be motivated to deliver a turnaround.
In the meantime, Hikma shares are trading on just eight times forecast earnings, with a 3.4% yield. I think that’s probably too cheap.
Howden: director share-buying
It looks to me like Howden Joinery may avoid being demoted and keep its place in the FTSE 100. But whatever the outcome, I think this successful growth business is starting to look like an attractive investment.
Howden’s business is built on offering an excellent service and supplying trade customers only. The company’s local branch managers are given plenty of freedom to build direct relationships with customers, in exchange for hitting commercial targets.
With the shares down by around 35% from last year’s record highs, Howden is now trading on around 11 times forecast earnings, with a useful 3.4% dividend yield.
Finance boss Paul Hayes already seems to have been tempted by the reduced share price. He’s spent more than £100,000 buying shares so far this year, including a £48k purchase earlier in August.
The big risk is that sales could slump next year if the UK suffers a full-blown recession. However, there’s no sign of problems yet and the share price already reflects a more cautious outlook. I think the shares could be a good buy in September.