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Artificial intelligence (AI) is almost certainly creating some unusually good opportunities to buy shares. The trouble is, figuring out exactly where they are is difficult.
It’s hard to know which software companies are going to be helped by AI and which are going to find themselves disrupted. Fortunately, this isn’t the only place to look for discounted stocks.
Distribution
Bunzl (LSE:BNZL) is a distributor of non-food consumables. That includes things like disposable tableware, cleaning supplies, and safety equipment.
There isn’t much of an AI threat here. Artificial intelligence might be able to help a company automate its buying process, but it can’t move physical goods to where they need to be.
Despite this, the price is down 39% in the last 12 months. But while the share price has stabilised a bit recently, it’s still trading at a price-to-earnings (P/E) ratio of only around 12.
That’s its lowest level in a decade – the average over the last 10 years has been more like 20. And it’s why I think there’s a huge opportunity right now that I’m looking to take advantage of.
Capital allocation
A falling share price isn’t usually anything for long-term investors to take advantage of. But in Bunzl’s case, it’s something that makes a difference to the underlying business.
The firm’s current focus is on growing through acquisitions. And it has a very good record of taking advantage of a large and fragmented market to build a scale that few rivals can match.
With its own stock becoming cheap though, Bunzl’s management now has to think about whether it can provide better value for shareholders by buying back some of its shares.
The company’s recent record has involved buying businesses at P/E multiples of around 10 or 11. So there’s a real case for thinking the firm should change direction with the share price unusually low.
Risks and opportunities
The case for buybacks is strengthened by the risk that comes with acquisitions. Even for an experienced firm with an outstanding record, there’s always a danger of integration difficulties.
There’s a downside to share buybacks in that that they don’t improve Bunzl’s scale the way an acquisition does. This also drives value and convenience for customers and sets the company apart.
That means management has a decision to make in terms of figuring out the best strategy. But I think either could create significant value for shareholders over the long term.
The current plan is to invest £700m in 2026 and 2027, prioritising acquisitions in the first instance, but buybacks are also happening. If the stock price didn’t change, that money would be enough to reduce the share count by 10% a year, although there are likely to be acquisitions that prevent that much of the cash being spent on buybacks.
I’m buying
A big reason Bunzl’s price has fallen is because of problems in its North American unit. Attempting to centralise the company resulted in a loss of agility and cost it a major customer.
But the firm has been quick to undo this misstep and management thinks it’s on the road to recovery in 2026. If that’s right, there could be a huge opportunity ahead – and I’m looking to take advantage.
