We consider ‘oversold’ to be where one thinks the selling action on said stock has been unduly harsh, presenting a solid buying opportunity in a quality company!
ITV
What it does: Founded in 1955, ITV is our largest commercial terrestrial broadcaster and makes content for other providers.
By Cliff D’Arcy. Priced at 57.44p each, ITV (LSE:ITV) shares are down 33.5% over one year and 56.8% over five years. The shares have been driven down in a weak market for TV advertising.
However, despite resembling a classic value trap, I regard this FTSE 250 stock as a value buy. At the current share price, it trades on a lowly multiple of under 8.5 times earnings, delivering an earnings yield of 11.8% a year.
Following sustained price falls, ITV’s dividend yield has leapt to 8.7% a year. That’s more than twice the FTSE 100’s yearly cash yield of 4%.
With advertising sales falling, the group faces continued headwinds in 2024-25. Also, its generous dividend is covered under 1.4 times by earnings, so might be at risk.
That said, CEO Carolyn McCall has given no indication of cutting this payout. Hence, I hold this stock for its high cash yield.
Cliff D’Arcy owns shares in ITV.
Moneysupermarket.com
What it does: Moneysupermarket.com Group plc operates price comparisons for money, insurance and home services through its websites.
By Paul Summers: Bias aside, I think the market reaction to Moneysupermarket.com’s (LSE: MONY) recent full-year numbers has been rather harsh.
The FTSE 250 member delivered record revenue of £432m in 2023. Pre-tax profit also rose by 4% to a little over £72m. That’s some achievement considering the energy-switching market remains in the doldrums. Then again, the fall in the stock could be down to the company’s belief that the latter is unlikely to see a rebound this year.
Even if that is the case, it doesn’t seem overly optimistic to say that deals will eventually become more competitive. When they do, the £1.3bn cap will surely see even more people using its services.
In the meantime, the shares are trading near a 52-week low and, as I type, come with a chunky forecast 5.4% dividend yield that looks to be sufficiently covered by expected profit.
Paul Summers owns shares in Moneysupermarket.com Group.
Safestore
What it does: Safestore is the UK’s largest self-storage unit provider with 131 stores. It also has over 50 locations across Europe.
By Charlie Keough. I could write a whole essay about oversold FTSE stocks, so whittling it down to one is no easy feat. That said, I have to go with Safestore (LSE: SAFE).
In the last 12 months, the stock is down 22.4%. Investors clearly aren’t bullish on the future outlook for the firm. Nevertheless, I certainly am.
Its recent struggles are understandable. High interest rates are a big threat to the firm. Not only do they pose the risk of customers letting go of units due to higher prices, but they also negatively impact property valuations.
But I’m in it for the long haul. And I think Safestore will prosper when rates fall. Management has plans to continue with its European expansion, which is what I like to see. With a trailing price-to-earnings ratio of around nine, its shares also look cheap.
Add to that a 4.1% dividend yield, and I think I could be on to a winner. As the wider market continues to sell, with any spare cash I have I’ll continue adding to my position.
Charlie Keough owns shares in Safestore.
Smith & Nephew
What it does: The UK-based medical device manufacturer focuses on the repair and replacement of soft and hard tissue.
By James Fox. I actually already hold some Smith & Nephew (LSE:SN.) stock in my pension. However, for some time I’ve been considering buying this beaten-down medical device manufacturer for my Stocks and Shares ISA.
The stock hasn’t recovered from the pandemic, when medical resources were channeled away from things like hip replacements and towards life-saving care. Before the pandemic, the stock was trading around 80% higher than it is today.
Smith & Nephew shares are also down 9.4% over the past 12 months. This partially reflects the reality that the firm has had to play down concerns about the impact of new weight loss drugs on long-term demand for hip and knee replacements. It remains a concern but one that’s likely overplayed.
Nonetheless, basic earnings are expected to pick up over the medium term. Currently, the stock is trading at 14.5 times forward earnings and analysts expect earnings to grow by around 10% annually over the next three-five years. All in all, including the modest 2.85% dividend yield, the stock looks oversold.
James Fox owns shares in Smith & Nephew.
St. James’s Place
What it does: St. James’s Place is a financial company, offering investment, insurance and pension services.
By Alan Oscroft. St. James’s Place (LSE: STJ) stock crashed when the firm posted FY2023 results. It’s now lost around half its value in the past five years.
There’s a good reason for the latest sell-off, though. It’s all about a scandal in which clients allegedly overpaid for fees and advice. It seems the firm has had to set aside a huge £426m for possible refunds.
The dividend was slashed too. But the forecast yield is still up at 5.7%. And forecasts put the price-to-earnings (P/E) ratio below seven.
Why do I think the sell-off might have been overdone? Well, mainly because they usually are, aren’t they? And financial stocks seem to be more prone to over-reaction than most others.
Of course, the big risk is that I’m wrong, that it will turn out worse than expected, and we’ll see a further share price crash.
But I could be tempted by a small investment.
Alan Oscroft has no position in St. James’s Place.
The post 5 oversold FTSE stocks to consider buying appeared first on The Motley Fool UK.
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The Motley Fool UK has recommended ITV, Moneysupermarket.com Group Plc, Safestore Plc, and Smith & Nephew Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
