Late Tuesday, the International Monetary Fund (IMF) highlighted the UK’s latest economic failings with some blunt criticism. As a result, the FTSE 100 has crunched down 130 points, as I write, dipping well below the 6,900 level.
After the IMF sternly criticised new chancellor Kwasi Kwarteng’s tax-slashing actions, a number of top FTSE 100 shares have suffered. These three are among the biggest fallers.
Insurance slump
The Aviva (LSE: AV) share price fell 7.2% Wednesday morning, and it’s down nearly 30% over the past 12 months. The forecast Aviva dividend yield has hit 7%, as the insurer’s turnaround is coming good.
Forecasts may change in the coming weeks, depending on how the current economic tornado settles.
But analysts currently have a couple of years of solid earnings growth pencilled in, which would drop the Aviva price-to-earnings (P/E) ratio down to under seven by 2024.
Aviva’s first-half results were summed up by chief executive Amanda Blanc: “Sales are up, operating profit is higher, our financial position is stronger. This has been an excellent six months for Aviva.”
The second half could well see Aviva taking a hit, especially if the Bank of England (BoE) needs to hike interest rates a lot higher to cope with Kwarteng’s unique take on what’s best for the country. But for the long term, I see a quality company at an attractive price.
Recovery setback
Rolls-Royce Holdings (LSE: RR) is one of the most-watched stocks on the FTSE 100 at the moment. And Wednesday’s market pummelling took it down a further 6.5% in morning trading.
The issues facing Rolls-Royce are widely known. It needs the aviation industry to get back to some sort of strength so that it can get its engine maintenance revenue streams flowing again.
The plunging pound, with the adverse effects that has on living costs, could seriously hamper the BoE’s efforts to control inflation. And that’s unlikely to get people flying. So what little recovery investors were hoping for in the second half of the year might well be frustrated now.
But I don’t think this past week’s events should make a lot of difference to the long-term prospects for Rolls-Royce. There’s too much underlying uncertainty for me. But those who rate the stock a ‘buy’ might see a better opportunity now.
More insurance
Legal & General (LSE: LGEN) is another of my favourite financial services stocks. It’s fallen 8.5% on the day, as I write, and it’s down 24% over the past 12 months.
This is another share with attractive forecasts and big dividends. Analysts expect the P/E to drop to around six over the next couple of years. And they’re predicting a dividend yield that would exceed 9%.
Again, like Aviva, forecasts could easily be adjusted downwards now. And I do think Legal & General could have a tougher year ahead than previously expected.
But with my long-term investing horizon, I’ve always liked the financial sector. It certainly has its ups and downs. But I reckon the downs can provide great times to buy.