So much for the summer lull. Over the past few weeks, markets have been spiced up by a multitude of UK companies issuing profits warnings leading to some impressive share price movements. Investors have enjoyed a wild ride, with ample opportunity for impressive share price returns. However, far from being a signal of tougher times, however, this could instead represent a potential buying opportunity for some of the largest UK companies.
While many in the industry suggest that the stock market is ‘overvalued’, it may in fact represent the perfect time to look at stocks that are trading significantly below their 2017 highs. Delving deeper into the causes and consequences of these share price movements, we ask if some of these sell-offs have been overdone and attempt to identify the stocks now trading at bargain prices that you should be looking at right now.
The overriding theme of the summer, stealing many headlines, has been profits warnings. No fewer than three FTSE 100 or 250 stocks issued one such warning in just a single week in August, with share price impacts ranging from WPP’s -11.5% to Provident Financial’s calamitous -75% one-day hit. Yet many of these have come about due to poor management, legacy issues or operational issues rather than just structural ones. Could some of these stocks offer attractive returns should management get their act together in the final third of 2017?
An entire sector that has struggled this summer has been the Banks. Heading into the start of the season, markets were seriously pricing in the potential for a Bank of England rate hike, either by end-2017 or the start of 2018, as inflation spiralled. The first BoE hike since 2007 would have helped to improve the Banks’ net interest margins on lending, however a marked slowdown in inflation has dashed hopes of an imminent hike. Consequently, the sector has been under pressure over the past month, with major players falling to multi-month and 2017 lows.
An ongoing theme for 2017 has been the effectiveness of the OPEC-led Crude Oil production cuts in order to lift prices from their sensational 2016 lows of $20. The producers, including Saudi Arabia and Russia, have been at odds with rising production from US shale producers. While global benchmarks have held around the $50 a barrel mark since July, the UK’s major Oil companies have been stuck in relative limbo as Brent and US crude trade within $5 ranges since the start of August. Could they be due a breakout when OPEC meets in September?
Meanwhile, events from across the Atlantic have been having a significant impact on UK stocks. The Trump administration’s failure to repeal Obamacare has hindered the Pharmaceutical sector, while the FDA stating that it may consult the public on reducing nicotine from future e-cigarettes saw the Tobacco sector receive a drumming. Many had hoped that the President’s stubbornness would have been able to force through the Republican-majority Congress to repeal his predecessor’s namesake – and drug price caps – to the benefit of the UK’s multinational Pharmas, but this has so far failed. Meanwhile, Tobacco stocks have yet to see their share prices recover. Could 2017’s final few months provide a change of fortunes for both of these embattled sectors?
Over the page, we reveal our top five favourite ‘bargain’ blue chip stocks - one from each of the categories mentioned above - and look at what events are on the horizon for each stock. Will any of these catch your eye?