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I love to buy cheap stocks and with global stock markets sliding now looks like a good time to go bargain hunting.
Putting it simply, shares are cheaper. If it’s a dividend payer, the yield rises too because the entry price is lower. Buying the dip also reduces the risk of piling into a stock whose price is inflated by frothy sentiment rather than solid fundamentals.
It’s never as simple as grabbing anything off the racks though. A bargain only makes sense if it’s something worth owning in the first place. Quality comes first, not the sticker price. If a company is sinking due to its own mistakes rather than wider market jitters, that brings a whole new layer of risk.
The FTSE 100 is falling!
Media giant WPP is a case in point. Its share price has collapsed 60% over the last year as advertising budgets dry up and clients walk away. WPP looks dirt-cheap with a price-to-earnings ratio of around 6.2, well below the FTSE 100 average of roughly 17, but cheap doesn’t always mean good value.
I think GSK looks more promising. The pharmaceutical giant already appeared attractively priced before this sell-off and looks even better value today with a P/E of 11.2 and yield of 3.45%. Hikma Pharmaceuticals may also be worth a look.
It trades on a P/E of just 9.4 and yields around 3.95%. The Hikma share price has slumped 12% in the last month, although not only because of the market rout. The board cut margin and revenue forecasts on 6 November as global supply chain problems delayed output at its new Bedford facility. Even so, the long-term prospects look solid.
Great bargain shares
Trainer retailer JD Sports Fashion now trades on a rock-bottom P/E of 6.2 as shoppers in the US and Europe tighten their belts. Budget carrier EasyJet looks cheap too with a P/E around 7.4. Both have been struggling for some time, but the latest sell-off has made them even more affordable for those prepared to wait for consumers to feel flush again.
One of my favourite growth stocks is International Consolidated Airlines Group (LSE: IAG). Its shares are down around 5% over the last month, although they’re still up 50% over the year as the recovery from the pandemic continues.
Airlines are sensitive to shocks, as everything from weaker consumer confidence to wars, natural disasters, and rising fuel costs can hit revenues.
The group warned of “some softness” in the North American market in its 7 November update, when Q3 operating profit edged up just 2% to €2.05bn. That’s short of analyst forecasts of €2.19bn. There may be more volatility ahead, especially given growing concern about a US recession, but I still think this is one investors might consider buying with a long-term view.
Buying after a broader market dip isn’t a guaranteed win. Right now, nobody knows if the current sell-off will accelerate or do a sharp reverse. As a result, I’ll spread my own purchases across the next few weeks, taking advantage of further dips, while accepting I’ll never call the exact bottom of the market. With many FTSE 100 shares looking cheap, there’s no point hanging around.
