Over the past year, the FTSE 100 is up a modest 3.5%. But within the index, there have been winners and losers. In particular, there are currently 27 FTSE 100 shares that have lost at least 30% in value over this period. Some are down for valid reasons, others I’m not so sure about. So here are some I’m thinking of buying… and others I’m not touching!
Companies I’m staying away from
At the bottom of the pile is Ocado Group, with the share price down 63% in a year. The pressures of cost inflation have negatively impacted the grocery division. This was acknowledged by the business earlier this summer in the most recent results presentation.
As inflation is only likely to get worse over the winter, I think that profit margins will be squeezed. Even though the logistics and solutions arm should be less impacted, it doesn’t generate anywhere near enough revenue to offset the grocery division. The fall in recent months could be (in part) due to a lot of investors choosing to sell, fearing that the worst is yet to come.
Entain is another business that has lost ground and that I’m keen to avoid. The gambling company is working hard to diversify operations by opening new markets in central and eastern Europe. However, I think its problems are more fundamental. With all of Europe (and beyond) in for a tough winter, consumers are likely going to restrict unnecessary spending.
On that basis, I think that Entain could suffer from a material drop in consumer demand for gambling, which should have a knock-on impact of lower revenue.
FTSE 100 shares that could be undervalued
It’s not all doom and gloom in the market. I think that some shares have been oversold and are an opportunity for me to buy.
For example, homebuilders Taylor Wimpey and Barratt Developments are both in the -30% group. I understand that some investors are worried about the housing sector. Higher interest rates make it tougher for people to afford to buy a house. The property market could also dampen down during a recession later this year.
Yet I think that now is a good time to buy the dip for long-term growth. Both companies have solid forward order books, that should help to insulate a short-term shock. Further, I can pick up above-average dividend yields from both firms in the meantime.
Finally, I’m considering buying shares in J Sainsbury. Of course, price inflation is going to squeeze margins, just like at Ocado. But the difference here is that I think customers will switch to cheaper own-brand options from Sainsbury’s. So, the business should be able to retain revenue from customers, albeit with a move to buying different goods from the supermarket.
I’d also classify the supermarket as a defensive stock and think it could be a smart buy going into the end of the year.