Amid the current volatility, I’ve been looking for at shares to buy at sizeable discounts. As I write, the FTSE 100 is some distance below 7,000, having hovered around 7,500 for much of August.
The volatility, and correction, have been engendered by the new government’s exuberant fiscal policy. A little over a week ago, the chancellor promised to lower taxes and incentivise economic activity.
However, while tax cuts may sound great, the concern is that our fiscal policy and monetary policy are working at odds. While the Bank of England (BoE) is attempting to bring inflation down through rate rises, central government is committing to policies that are highly likely to cause more inflationary pressure.
So, here are two discounted stocks I’m looking to buy for my portfolio.
Barclays
Barclays (LSE:BARC) is among the biggest banks in the world and the top three in the UK. However, it hasn’t performed quite as well as its peers this year, and that’s primarily due to a massive impairment on securities sold in error.
In July, Barclays reported a fall in pre-tax profits due to a £1.9bn charge to cover the cost of buying back securities it sold in error and a £300m impairment provision for bad debts. Pre-tax profits fell 24% to £3.7bn. As a result, the stock is down 22% over the year.
However, Barclays shares are also down 13% over the past week. The stock, like other banks and financial institutions, sank following the mini-budget. Things got worse amid reports that the government was planning to introduce quantitative easing to avoid paying £10bn a year in repayments to banks.
However, there is one big plus. And that’s the impact of higher interest rates on margins. Banks have already seen margins increase, but with BoE rates set to near 6% next year, net interest margins (NIMs) will soar. Recessions aren’t good for credit quality, but higher NIMs will more than make up for it.
Hays
Recruitment firm Hays (LSE:HAS) is down 13% over the past week, and is now down 41% over the course of the past year. However, the business has performed well over the past 12 months.
In August, Hays reported a jump in full-year profit thanks to an “excellent” fee performance across all regions amid a recovery from the pandemic. In the year to 30 June, operating profit rose to £210.1m from £95.1m a year earlier.
However, I, like many other investors, am trying to anticipate how companies will be performing in 6-12 months time. And the problem is, there are concerns that the UK labour market might be cooling.
As a result, Hays is currently trading at a discount. In fact, it is near its lowest point in 10 years. But personally, I think that’s overdoing it.
Yes, we have recession forecasts in UK, and elsewhere in Europe where Hays operates, but we’re not looking at deep Covid-like recessions. After all, in the UK, we’re actually seeing a lot of emphasis on enhancing economic activity.