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I reckon some of the best stocks to buy are fallen giants that have lost their appeal with investors.
But deciding which ones to buy isn’t always straightforward. After all, a falling share price could be a sign of a fundamental problem. However, this isn’t always the case. Sometimes, a stock becomes unloved due to some temporary issues that aren’t going to last.
Here’s one big name that’s seen its stock market valuation tank over the past three years. But is it a value trap or a bit of a bargain? Let’s take a closer look.
A former number one
Just over 26 years ago, on 17 January 2000, Vodafone’s (LSE:VOD) shares rose 6.7% to 351p making it the most valuable company on the FTSE 100. At the time, the telecoms group was valued at £109.1bn. How times have changed. Today (6 February), it has a market-cap of £25.5bn. On this basis, I think it comfortably meets the definition of a fallen giant.
And after a painful and prolonged period of restructuring, there are signs it’s starting to turn the corner. The group’s exited a number of markets, most notably in Spain and Italy, in a bid to improve its return on capital. In the UK, it’s merged its operations with Three. As a consequence, VodafoneThree’s now the country’s largest mobile network with 28m customers.
As a sign of confidence, it’s also increased its interim dividend for the year ending 31 March 2026 (FY26) by 2.5%. It hopes to do the same for its final payout. If it does, it means the stock’s forward yield is 3.7%.
Latest update
On Thursday (5 February), the group published its Q3 FY26 trading update. It said it expected its full-year result and free cash flow to be at the upper end of guidance. It reported “good service revenue momentum” in Europe, Africa, and Türkiye. Importantly, in Germany, there was growth for the second successive quarter. The group’s been struggling here due to a change in law that prevents landlords from bundling television contracts with tenancies.
However, investors weren’t impressed. The shares closed the day 4.7% lower. I suspect they didn’t like the fact that the group’s quarterly organic service revenue growth was 5.4%, compared to 5.8% for Q2. Alternatively, some shareholders might have cashed out after a recent mini rally.
My view
But in my opinion, I still think the group’s shares offer good value. Both earnings and cash flow are going in the right direction. And although the group’s service revenue growth slowed in the quarter, I’m mindful that recoveries are rarely smooth. IG’s chief market analyst was positive, describing Vodafone’s performance as “one of the FTSE’s more impressive turnaround stories”.
However, opinion among analysts appears divided. In January, Deutsche Bank set a new 12-month price target of 150p. Citi raised its own to 100p. The consensus is 104p, around 4% lower than the current share price.
Although the group still faces some significant challenges, not least fierce competition in its key markets and a high-ish debt pile, I’ve seen enough to believe that the stock’s worth considering by patient long-term investors. I doubt it will ever be the FTSE’s number one again but I’m optimistic it will climb up the charts over the coming years.
