Howden Joinery

I had been thinking about buying into timber merchant Howden Joinery (LSE: HWDN) for a while.

The investment case is strong in my opinion. By developing relationships with trade customers, the company is able to attract repeat custom often with substantial sales volumes. The nature of the business and transportation costs means that Howden’s national network of local depots can help give it a cost advantage over farther flung suppliers. It has proven its business model can be very profitable.

Worries about a declining housing market have hit its shares hard, though. They have fallen 44% in value over the past year and now trade on a price-to-earnings ratio in single digits.

I recognise that a fall in house sales could hurt revenues and sales. But I expect renovations of existing properties to help support sales. In the long term, I reckon Howden’s robust business model could support a higher share price again.

JD Sports

I already owned shares in JD Sports (LSE: JD) before October.

Owning shares and watching them decline can cause investors to behave emotionally. JD’s decline of 55% over the past year is even worse than Howden’s.

That reflects concerns about management changes at the FTSE 100 retailer as well as the risk of inflation eating into profit margins. On top of that, if consumer discretionary spending falls, the market for sportswear could decline, hurting sales.

But as a long-term investor, I aim to behave rationally not emotionally. I take a similar view to JD as I do when it comes to Howden. I expect strong long-term demand in its market space. Within that space, it has an attractive position thanks to a large customer base, established brand, and proven business model.

Those assets could help support the business, which expects to deliver results this year in line with last year’s all-time record figures. I happily used the falling JD Sports share price as a buying opportunity for my portfolio.

Legal & General

A FTSE 100 share I had owned previously but no longer held coming into October was financial services provider Legal & General (LSE: LGEN).

But I saw a fall in the Legal & General share price as an opportunity to add the company back into my portfolio – and pounced on it. The shares are 20% lower than they were a year ago.

A worsening economy could hurt investment returns for the company. If that happens it may lead to sales and profits shrinking. But in the long term, I think the firm’s financial services expertise could help it attract and retain customers. It has a large customer base and very strong brand thanks to its multi-coloured umbrella logo.

Legal & General’s dividend yield of 7.9% is higher than many FTSE 100 peers. It should make the shares a useful addition to my passive income streams.

Given the huge dip, I’m thinking about buying shares in the retailer. I believe there’s the potential for a sizeable rebound in the share price in the not-too-distant future.

Why I like this FTSE 100 stock

After the big share price fall, JD Sports Fashion shares now look very cheap. Currently, analysts expect the FTSE 100 company to generate earnings per share of 12.6p this financial year, putting the forward-looking price to-earnings ratio at about 7.5 (assuming the earnings forecast is reliable). That valuation strikes me as very low.

This is a company with an excellent track record when it comes to growth. Between FY2017 and FY2022, sales increased from £1.8bn to £6.2bn. And in the first half of this financial year (ended 30 July), sales came in at £4.4bn, up 14% year on year.

It’s also a company that stands to benefit from a number of powerful trends in the years ahead. One such trend is the increasing focus on health and wellness. As a seller of trainers and athleisure, JD is essentially an ‘enabler’ here. Another trend is the ‘casualisation’ of fashion which is, in part, linked to the increasing prevalence of remote work.

Given the company’s track record and the potential for further growth, I think the stock looks like a bit of a steal right now. And I’m not the only one who sees value here. Recently, analysts at Berenberg named this FTSE 100 stock as a ‘top pick’. Meanwhile, analysts at Peel Hunt said that JD’s share price does not reflect the “strength of its global position” and its cash pile.

Risks to consider

Of course, there are a few risks to consider here. I think the main risk right now is consumer spending. If consumers continue to tighten their belts due to high energy and food costs, JD Sports Fashion could be impacted negatively. Having said that, during the Global Financial Crisis of 2008/2009, JD’s revenues held up well.

Another key risk is supply chain challenges. Recently, I went looking for a pair of white Nike Air Force 1 trainers (one of the retailer’s top selling shoes) and no JD Sports stores, or the website, had my size. That’s a worry.

At the same time, excess inventory could be a problem. Recently, both Nike and Adidas have had problems in this space. This could lead to discounting.

Finally, there’s the fact that Peter Cowgill recently left the company. He was instrumental in building JD Sports into the powerhouse that it is today. The new CEO, Régis Schultz, doesn’t have any specialist sporting experience.

My move now

To my mind, however, these risks are baked into the share price and the valuation right now. So I’ve moved the FTSE 100 stock onto my list of shares to buy.

Given the low valuation, I think the stock has the potential to deliver attractive returns in the medium to long term.

Here are two such shares I think could help improve my wealth for years to come.

Alphabet

Alphabet (NASDAQ: GOOG) is best known as the parent of online search and advertising giant Google. But it also owns a range of other businesses, from YouTube to Waymo. I think the core business could continue to see strong growth in future. On top of that, I expect revenues to grow due to the assortment of other services beyond Google.

Google’s dominant position could become more and more lucrative as digital tools play an ever greater role in the lives of people across the globe. It has a proven business model underpinning Alphabet’s incredible financial performance. Last year, for example, Alphabet recorded earnings of $76bn. For a company that is less than three decades old, I regard that level of profitability as outstanding.

Despite its strong competitive advantage, pricing power and large user base, over the last year the Alphabet share price has slumped 26%. Growth stocks generally have fallen, but I think in the case of Alphabet this has been overdone. It now trades on a price-to-earnings ratio below 20.

I do see risks here. For example, tightening client advertising budgets could hurt both sales and profits at Alphabet. But I see the company as one that is likely to do well over the long term. If I had spare money to invest today, this is one of the growth stocks I would happily add to my portfolio.

JD Sports Fashion

Over the past decade, the performance of retailer JD Sports Fashion (LSE: JD) has been very strong. Revenues and profits last year both hit an all-time high.

Can this impressive performance continue in the next decade and beyond? I think it may. The market for leisurewear and sports accessories is likely to keep growing, in my view. JD has a proven formula that it can apply in key markets across the world, including the US. I see that as a massive opportunity.

The company has been consistently profitable and seems to benefit from strong brand loyalty among its large customer base. Despite those strengths, the JD Sports share price has tumbled. In the past year it has fallen 55%. That means that the company now has a market capitalisation of under £5bn.

I see that as excellent value and would happily buy more shares in the business if I had spare cash to invest right now. There are risks: new management might struggle to create the positive momentum of the former long-term leader. But with a proven formula in an area where I expect to see robust demand, I think JD’s international growth platform might help propel it to new heights in future.

The recent share price fall is the continuation of a longer-term decline. Since the start of January, the company’s shares have more than halved in value.

This isn’t surprising given that JD Sports is vulnerable to an economic slowdown, particularly in the UK and Ireland, where it generates over 40% of its sales.

But JD is the UK’s largest sports fashion retailer and is something of a success story. It has grown rapidly in recent years. Sales were £3.2bn in 2018 and are likely to exceed £9bn in 2022. This growth helped the share price treble between January 2019 and December 2021.

Like the trainers it sells, the company has moved with the times. Although it has 3,400 stores, over 40% of its sales are generated online.

Board changes

Earlier this month, investors reacted badly to the news that CFO Neil Greenhalgh was to stand down in 2023.

Despite the promise of a “smooth transition to a new CFO“, and the board insisting it was business as usual, the company’s shares immediately plummeted in value, and closed over 9% down.

To me, wiping nearly £500m off the value of JD Sports seems to be an over-reaction. Greenhalgh will help pick his successor (and should be in the mix for any future FTSE 100 CFO vacancy that might arise).

However, board changes make investors nervous, and his departure follows that of Peter Cowgill, who stood down in May as Executive Chairman.

What about the financials?

Last month, the company released its results for the 26 weeks to 30 July. These revealed a £532m increase in revenue to £4.4bn, but a £64m fall in operating profit to £333m.

Encouragingly, the gross profit margin was unchanged at 48.5%. This shows that, despite rampant inflation across its supply chain, JD Sports is able to pass on rising costs to its customers.

However, selling and distribution expenses were 14% higher, and administrative expenses were up 11%, when compared to the same period in 2021.

Should I invest?

So where does that leave me? There are a number of concerns I have about investing.

Future expansion is going to be difficult. The company was recently ordered by the Competition and Markets Authority to sell Footasylum, which operates 63 UK stores, on competition grounds (that it — and some analysts — disagreed with).

According to a report on news site Fashionnetwork.com, the average teenager owns six pairs of trainers. With younger people more likely to be affected by the cost-of-living crisis, will they want to buy more?

Also, JD Sport’s dividend yield is paltry. Last year the company paid 0.35p per share which, if repeated this year, implies a yield of less than half a percent. This is unlikely to change soon, with the board intending to restrain dividend growth to help fund “ongoing growth opportunities“.

Finally, as for most retailers, a successful Christmas is going to be vital for JD Sports. With gathering economic headwinds, I fear retailers are heading for a bleak winter.

I’m therefore not going to invest. Instead, I’ll wait until the New Year before reviewing the situation again.

With the economy in bad shape and inflation raging, I would not be surprised if we see continued turbulence in the index. But turbulence can be a long-term investor’s friend. That is because it sometimes makes it cheaper to buy into companies with promising future prospects.

Here are three such FTSE 100 shares I would snap up for my portfolio today if I had spare funds to invest.

JD Sports

The sportswear retailer JD Sports (LSE: JD) is well-known thanks to its branches across the country – and indeed around the world.

But the most athletic thing about the JD Sports share price in the past year has been its downward movement. It has more than halved in the past 12 months.

Is that because of disappointing business performance?

I do not think so. The FTSE 100 company expects its headline profit before tax and exceptional items this year to be in line with last year, which was a record. Admittedly simply more of the same might seem like a letdown after years of growth. But this is in an environment where the firm faces risks from rampant inflation hurting profit margins and slowing consumer spending eating into sales.

The firm benefits from a proven business model, large customer base, and high brand awareness among its target audience. I think that gives it a long-term competitive advantage and I have been buying the beaten-up shares for my portfolio this year.

Legal & General

Financial services firm Legal & General (LSE: LGEN) has also seen its shares fall in the past year, by 19%.

A challenging economy could be bad news for profits at the company if investors start to pull out funds. But I see an upbeat long-term investment case here. Financial services is an area I expect to keep seeing strong customer demand. Legal & General has a long-established brand that helps it to capitalise on that. It also has a sizeable customer base.

The company has a progressive dividend policy, meaning it aims to grow its annual payout. That is never guaranteed but Legal & General has an impressive track record of dividend increases and currently yields a juicy 8.2%.

Smith & Nephew

Yet another FTSE 100 faller in the past year is medical devices manufacturer Smith & Nephew (LSE: SN). its shares are down 21% in 12 months.

But the company has a growth strategy that will hopefully see it increase both sales and profits in coming years. I like the company’s position within medical devices, an industry I expect to continue to benefit from rising demand thanks to aging, growing populations in many countries.

The pandemic showed one risk to the company, which is any slowdown in elective procedures hurting demand for its products. But with a backlog of operations outstanding, I expect positive business momentum for Smith & Nephew. I think it could be an attractive addition to my portfolio if I had the cash to invest.

Having said that, recent stock market panic means that many top-quality British stocks have been unjustly sold off. The result is that many companies with good long-term outlooks now trade at a discount.

Here are three FTSE 100 bargains on my shopping list today.

BAE Systems

I’d buy BAE Systems (LSE: BA) to capitalise on rising defence spending over the next decade.

Russia’s invasion of Ukraine, and Chinese military drills around Taiwan, have upset the geopolitical balance this year. As a consequence, traditional allies in the West are taking steps to upgrade their militaries.

UK defence spending alone is set to double to £100bn by 2030, it’s been announced. In this landscape, BAE Systems should see demand for technologies like its jets, ships, and drones rise strongly. I’m expecting it to thrive despite the threat of supply chain problems in the near term.

At 845p per share, it has a P/E ratio of 16.1 times. This isn’t that cheap on paper. But I think it represents fantastic value given the manufacturer’s rapidly-improving sales outlook. JP Morgan has just slapped a £10 price tag on its shares.

JD Sports Fashion

Sports and athleisure retailer JD Sports Fashion (LSE: JD) on the other hand trades on a rock-bottom P/E ratio of 8 times. This is comfortably within the accepted bargain benchmark of 10 times or less.

Its low valuation reflects the twin pressures of sinking consumer spending power and rising costs. But it fails to reflect the sportswear giant’s bright long-term outlook in my view. I expect JD’s share price to recover strongly from current levels.

The activewear segment is still tipped for spectacular growth (analysts predict a global market worth $385bn by 2032, up 83% from current levels). And JD Sports has the brand power to make the most of this opportunity.

It also has an excellent e-commerce platform, giving it the means to exploit the digital shopping boom.

National Grid

I’m also thinking of buying National Grid (LSE: NG) shares to provide me with lifelong passive income.

Today the power transmission business trades on a forward P/E ratio of just 13.9 times. It’s a reading I believe fails to fully value the firm’s excellent defensive qualities. The essential service it provides ensures reliable earnings regardless of economic conditions. National Grid also has a monopoly on what it does.

As I say, I also think it’s one of the best stocks to buy because of its excellent dividend potential. Today it offers huge dividend yields of 5.9% for this year and 6.2% for next year.

And despite the huge costs of maintaining the power grid I expect it to continue paying good dividend yields over the long term.

As a long-term investor, I think that presents opportunities for me. If a quality business that I think has good future prospects is available at an attractive price, I can take advantage of that price to tuck it into my portfolio. That is why in recent days I have increased my position in one FTSE 100 share and started a position in another one.

JD Sports

I already held shares in retailer JD Sports (LSE: JD) and am upbeat about its prospects. The company has a proven retail formula and its international footprint gives it an impressive platform for growth.

But not all investors seem to share my view. This FTSE 100 share has lost 49% of its value in the past 12 months.

The share price nearly halving suggests the company’s prospects may be far less attractive than I reckon they are. I do see risks. For example, cost inflation could eat into profit margins. Tightening consumer spending might see shoppers less willing to splash out on fancy trainers. The company has also had a leadership change this year, which may mean it struggles to maintain its impressive growth rate of the past few years.

However, I am upbeat. The new leadership is experienced and could do well helping JD as it grows in size. A lot of its customers are young and will still find money to spend on clothes and shoes even when budgets are tight. The company’s interim results came in at the top end of its board’s expectations. And JD expects headline profit before tax and exceptional items for the year to match last year’s record performance.

Legal & General

I also took advantage of share price weakness to add the financial services company Legal & General (LSE: LGEN) back into my portfolio. These FTSE 100 shares are trading at a 20% discount to their price 12 months ago.

Again, there are risks that I think can help explain some of the bearishness towards the shares. A worsening economy could lead to people investing less. That might be bad for the company’s revenues and profits. Recent turbulence in the pensions market has highlighted the risk of some providers needing to unload assets at low prices, although Legal & General said this week that it has not been forced to do that.         

The long-term story here remains strong, in my view. I expect robust demand for services such as insurance in coming decades. With a well-recognised brand and large customer base, Legal & General is poised to benefit from that. I also find its 8.2% dividend yield attractive.

Quality FTSE 100 shares on sale

Both JD Sports and Legal & General may face challenges ahead. But both are well-established businesses with proven models and a track record of profitability.

I see recent share price weakness as a buying opportunity. So I have purchased shares in both companies this week.

The FTSE index has fallen a whopping 6% from its September highs of a fortnight ago. And the panic has seen top-quality stocks sold alongside more vulnerable, highly cyclical companies.

Here are two great shares I think could be too cheap to miss. They trade on rock-bottom price-to-earnings (P/E) ratios and one boasts market-beating dividend yields.

Taylor Wimpey

Housebuilder Taylor Wimpey (LSE: TW) is a stock market bargain that I already own. And despite the rising dangers it faces from interest rate hikes, I’m tempted to buy some more.

Heavy share price falls means it trades on a forward P/E ratio of 4.6 times today. Its dividend yield meanwhile has shot to 10.1%.

The collapsing pound, and fears of higher inflation due to the government’s planned tax cuts, mean that interest rates could soar. The market is increasingly expecting the Bank of England benchmark to move to around 6% next year, up from current level of 2.25%.

This has the potential to sink homes demand as buyer affordability is rattled. Analysts at Credit Suisse warn that home prices could collapse between 10% and 15% in this scenario.

It’s my opinion though, that Taylor Wimpey’s slump to seven-and-a-half-year lows this week (to below 90p per share) reflects this threat.

Besides, as a long-term investor, I still find the company’s profits outlook beyond 2022 and 2023 highly attractive. The supply-and-demand imbalance that’s powering home prices steadily higher (they increased 8.7% in September) should return in force due to persistently weak housebuilding activity.

That’s assuming home sales sink in the first place which they may not. That September home price data shows how resilient the housing market has remained in spite of the cost-of-living crisis and repeated interest rate rises.

JD Sports Fashion

Retailer JD Sports Fashion (LSE: JD) has collapsed due to fears over declining consumer spending and accelerating cost inflation. In fact, it’s the third-largest faller on the FTSE 100 over the past week.

As a consequence, JD now trades on a forward P/E ratio of just 8.4 times. I think this is terrifically cheap given the company’s ongoing resilience (revenues rose 12% between February and July despite the cost-of-living crisis).

Robust trading reflects rock-solid demand for athleisure (sports fashion) goods and the exceptional brand power of the products the company sells. Nike, Adidas trainers and hoodies and the like still sell strongly even when economic conditions worsen.

I’d buy JD Sports shares too as the athleisure market is tipped to keep rapidly expanding. Some are even tipping annual growth of 9.9% through to 2028. This could help the company’s shares rebound strongly from their current lows and deliver fat investor profits.

Supermarket shock

Ocado (LSE: OCDO) shares continued their fall during the week. They’re now down almost 70% over the past 12 months. Shareholders are still well in profit since flotation, though.

The latest dip is fallout from a trading update on 13 September, in which Ocado warned us to expect “a small sales decline in FY22 and close to break-even EBITDA“.

Despite that, the company’s all-in-one online selling package, known as the Ocado Smart Platform (OSP), is doing well. It provides a robotic warehouse automation package. And by the end of the first half this year, 11 partners in nine countries were signed up.

International revenue from the OSP business more than doubled in the half too.

The problem for me is that the bulk of Ocado’s revenue still comes from retail. The OSP business might have years of strong growth ahead of it. But I just don’t know how to put a valuation on it, so I’ll give it a miss.

Out of fashion

JD Sports Fashion (LSE: JD) shares took a dive on 22 September in response to interim results, and then slid further by the end of the week. We’re looking at a 12-month fall of 50% now.

I wonder if this might just be a return to normality. JD shares did soar during the pandemic, but then went into sharp decline in 2022. Over the past five years, shareholders have seen their investment rise by 40%, though the price is back at mid-2019 levels now.

The company’s outlook is upbeat, with early sales in the second half around 8% ahead of the previous year. JD also notes “an encouraging return to positive trading in the United States“.

Forecasts suggest a forward price-to-earnings (P/E) ratio of under 10. There’s certainly risk here, as first-half profits were weak. And a recession ahead of us won’t help.

But I find the valuation attractive, and I’ve put JD Sports Fashion on my list of buy candidates.

Cheap land?

Land Securities (LSE: LAND) had seen its shares slowly gaining in 2021. But 2022 has been less kind, as the price slid. The real estate investment trust (REIT) released an operational update on 21 September, and the market didn’t like it. The shares dipped further, and have now lost nearly 25% of their value in the past 12 months.

With the REIT now down to levels not seen since the worst of the pandemic, I’m adding it to my list of buy candidates too.

Forecasts put the dividend yield at over 6% this year. And Land Securities has a solid track record of annual dividend raises. Whether it will be able to continue that throughout the coming recession is the big risk. And if the dividend is reduced, I can see the shares falling further.

But I see a healthy long-term future for the property rentals business, and I intend to examine this one more closely.

But, as yesterday’s interim results showed, the business appears to be in rude health. Revenue for the first half grew 14% compared to the same period last year. Although the operating profit for the six months slipped, the company continues to expect headline profit before tax and exceptional items for 2022 will come in at around the same level it did last year. I think that is good, as last year was the strongest performance in JD’s history.

So, is this an opportunity for me to add more shares to my portfolio in the hope of recovery?

JD’s challenges

To begin, I think it is worth considering why the JD Sports share price has fallen so steeply.

I see a couple of reasons. A key one is executive changes. The group’s longstanding executive leader has been replaced this year. After his stellar record of building the company, investors are nervous about what comes next. There is a risk that sales growth could slow. However, the new management is experienced and seems capable. For now at least, I see no specific reason to believe that they cannot continue to guide JD on a successful path.

Another concern is that the worsening economic environment will eat into shoppers’ willingness to splash out on the latest pair of flash trainers. That is a risk, and indeed the company nodded to “widespread macro-economic uncertainty” in its results. But it also struck an upbeat note, for example noting an “encouraging return to positive trading” in the US market.

Opportunities ahead

These challenges are real – but do they justify the JD Sports share price almost halving?

As I see it, the company’s market is likely to continue to experience strong demand. Even if a recession reduces some discretionary consumer spending, I think JD’s core audience is likely to keep wanting to stay up to date with the latest fashion. It has a strong brand and established customer base. The firm’s outstanding growth rate in the past decade shows that it understands how to source effectively, appeal to shoppers and make a profit.

If demand does soften, that could hit sales – although the first-half results show little sign of that happening so far. Other risks including supply chain inflation might also eat into profits. But I think this is a high-quality business with an appealing customer proposition and proven ability operationally.

Why I like the JD Sports share price

Given all that, the stock looks like a bargain for my portfolio. Using last year’s earnings, the company is trading on a price-to-earnings ratio of around 13. It has a strong brand, and is a leading player in a market I expect to see continued growth.      

I have been buying JD Sports shares for my portfolio this year in anticipation of recovery and long-term growth. I plan to keep doing so.