Though the US stock market has tumbled in 2022, UK shares have fared far better. As I write, the UK’s FTSE 100 index has actually gained 1.6% since 31 December 2021. However, not all Footsie shares have done well this calendar year. Indeed, some have plunged spectacularly over the past six months. And it’s among these flops and failures that I’ve been seeking undervalued stocks.
The FTSE 100’s biggest half-year flops
These are the FTSE 100’s five worst performers over the past six months. For comparison, I’ve also included each share’s one-year performance:
| Company | Sector | Six-month change | 12-month change |
| ITV | Media | -41.7% | -42.6% |
| Rolls-Royce Holdings | Aerospace & Defence | -43.0% | -22.3% |
| JD Sports Fashion | Retail | -43.4% | -26.9% |
| Scottish Mortgage Investment Trust | Financial | -48.1% | -30.0% |
| Ocado Group | Retail/Tech | -55.4% | -59.4% |
Looking at these five FTSE 100 companies, I don’t see much in common between them (except for their beaten-down share prices, of course). Losses over the six-month period for these five Footsie flops range from almost 42% to more than 55%. And the average six-month decline across all five is a whopping 46.3%. To put these falls into context, the FTSE 100 is up nearly 3% over the past six months (and +3% in 12 months).
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Which of these Footsie failures would I buy today?
As a veteran value investor, I’m always searching for cheap shares in quality companies. What I look for are stocks trading at reasonable prices based on their underlying fundamentals. For example, I’m drawn to FTSE 100 shares with low earnings multiples, high earnings yields and market-beating dividends. I’m less interested in go-go growth stocks driven by future earnings growth. In other words, I prefer my jam today, rather than tomorrow.
Here are the current fundamentals of these five FTSE 100 fallers:
| Company | Market value (£bn) | Price/earnings | Earnings yield | Dividend yield | Dividend cover |
| ITV | 2.9 | 7.8 | 12.8% | 4.5% | 283% |
| Rolls-Royce Holdings | 6.8 | 55.0 | 1.8% | – | – |
| JD Sports Fashion | 6.8 | 158.9 | 0.6% | 0.2% | 286% |
| Scottish Mortgage Investment Trust | 11.3 | – | – | 0.5% | – |
| Ocado Group | 6.0 | – | – | – | – |
Looking at this table, only one share stands out to me in terms of value and income. It is, of course, terrestrial broadcaster ITV Group.
At the current share price of 72.76p, ITV shares trade on a multiple of less than eight times earnings. Also, their dividend yield of 4.5% a year beats the 4% cash yield on offer from the wider FTSE 100 index. At these price levels, ITV shares look like the pick of this poorly performing bunch for me. After all, this stock has almost halved in 11 months — it trades 45.8% below its 52-week high of 134.15p hit on 14 June 2021.
Then again, investors are worried about ITV’s plans to increase spending on programme content in order to compete with much larger rivals. But the company’s balance sheet is sound, with only £414m of net debt and access to £1.5bn of liquidity. In summary, I think fears about ITV’s future earnings are overdone. Hence, I’d gladly buy this cheap share today!
