It hasn’t been the best of years for the FTSE 100. The index is trading just 0.84% higher than a year ago. Three stocks have done particularly badly and the strange thing is that I’d like to buy them all.
As a value investor, I prefer buying stocks when the market hates them. It means they’re cheap and reduces the risk of overpaying for a passing fad.
I like bargain stocks
I’m sorry to report that I own the worst-performing FTSE 100 stock over the last 12 months, housebuilder Persimmon (LSE: PSN), whose shares have crashed 45.02%. Personally, I’m down ‘just’ 15.8%, having bought in October.
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All the housebuilders have been hit by soaring interest rates and house price crash fears. Yet Persimmon has been hit hardest of all. Last year’s dizzying 20% yield has fallen to 6.16%, following a 75% dividend cut. Yet I reckon it has bounce-back potential, once the mortgage crunch eases. It’s irresistibly cheap, trading at just 3.92 times earnings.
Base rate hikes have yet to feed through to house prices, which have fallen a modest 2.6% in the last year, according to Halifax. There could be more pain to come. But I’ll be watching events like a hawk, ready to swoop ahead of the recovery.
Telecoms giant Vodafone Group (LSE: VOD) is the second worst FTSE 100 performer over 12 months, down 44.54%. That’s hardly a surprise, as its share price only ever seems to travel in one direction, and that’s downwards.
Equally unsurprisingly, the shares look cheap, trading at 7.23 times earnings, while yielding 11.1%. A substantial dividend cut now looks inevitable, but that could still leave a handsome yield.
New CEO Margherita Della Valle is desperate to simplify the company and deliver some growth. But she has a tough job on her hands. Of these three flops, Vodafone is bottom of my ‘buy’ list. But if the dividend is cut and the share price dips as a result, I might take a chance on it.
Telecoms is evidently a tough sector with BT Group (LSE: BT.A) the FTSE 100’s third-worst performer, down 35.93% over the last year. Like Vodafone, it’s also too sprawling for its own good. It has multiple brands including Openreach, EE, BT, and Plusnet across the mobile, broadband, landline, TV, sports and gaming markets.
Its share price has been falling for so long that many bargain seekers have packed up and gone home. But this could be a ‘buy’ signal for the brave. Again, it’s cheap, trading at 6.26 times earnings, while yielding 6.36%.
This dividend also looks vulnerable. UBS is warning it could be cut in half as rising interest rates drive up the cost of servicing BT’s massive £18.9bn debt. Without a cut, BT will have to borrow more than £900m a year for the next three years. Did I mention the company also has a huge pensions deficit?
I’m biding my time
Yet revenues are forecast to rise over the next two years to £20.9bn. BT shares could benefit when wider sentiment recovers. I’d like to buy this one too, when I’m feeling a bit braver.
All three stocks come loaded with risk. I’d aim to hold them for at least five years and ideally much longer, to give my choices time to pay off.
