Many investors specialise in digging out undervalued stocks, companies whose share price looks well below the firm’s intrinsic value. The aim is to cash in as the stock recovers to reflect the company’s true financial status and fundamentals.
It can prove a rewarding strategy and we have asked expert stock pickers to name their favourite global “value plays” today.
Nike: US$56 (Dh206) a share *
Dan Dowding, the chief executive officer at IFAs Killik & Co in Dubai, recommends making a dash for the world’s leading branded sportswear company Nike. “The US-listed company operates in 190 countries under the Nike, Converse, Jordan and Hurley brands, and should benefit from two key trends: middle-class growth in emerging markets and the desire for healthier lifestyles in developed countries,” says Mr Dowding. He says its valuation of 20 times the earnings for 2017 is more than justified by expected earnings growth of up to 15 per cent a year.
Amazon: $771 (Dh2,832)
Amazon has become the world’s leading internet retailer by offering the widest range of goods at the lowest possible prices.
“Sales have grown by more than 300 per cent in five years,” says Mr Dowding.
Its strong brand and distribution network give the company an unassailable competitive advantage, he says, adding: “Amazon is expanding into new sectors, such as grocery delivery, and is now targeting India.
“The company’s 2017 valuation seems high at 70 times earnings, but rapid growth and strong underlying profitability means it could still be undervalued.”
Renault: €72 (Dh297)
Chi Chan, the lead portfolio manager, euro zone, at Hermes Investment Management, picks out French car manufacturer Renault.
He says the auto sector has stalled on concerns over sluggish car markets and worries that self-driving cars will hit future demand.
Mr Chan says this is overly pessimistic: “US sales may have peaked but are growing in Europe and China, while autonomous cars are still unrealistic in the near term.”
Renault trades at just 6.2 times its earnings.
Visa: $83 (Dh305)
Global payments company Visa should grow strongly as electronic payments are preferred, Mr Dowding says. “Visa and MasterCard have a global oligopoly in card and electronic payments, with little risk of disruption from alternative payments systems given their dominant positions.”
Visa, which doesn’t actually issue credit cards but facilitates global financial transfers, is valued at 23 times earnings for 2017. Mr Dowding adds: “It nonetheless looks undervalued given its current growth trajectory.”
Prudential: Â£13.46 (Dh65.70)
Prudential is a global insurer and investment manager with operations in Asia, the UK and the US.
Mr Dowding says the emerging market middle class and ageing populations in developed markets all need more financial products such as pensions, investments and insurance.
Prudential’s global spread helps to diversify company earnings. The insurer trades at a forecast 10.3 times earnings for 2017 and is expected to yield income of 3.4 per cent, Mr Dowding says.
Vodafone: Â£2.22 (Dh10.80)
Danny Cox, head of financial planning at UK financial adviser Hargreaves Lansdown, rings up global mobile phone giant Vodafone, which should benefit from the global rush to 4G internet.
“Although the company is listed in London this is actually a play on Europe, where it has a large and growing customer base.” Growth should pick up as Vodafone broadens its mobile services to include broadband, telephone landlines and digital TV.
International Airlines Group (IAG): Â£4.21 (Dh20.55)
IAG is the parent company of Aer Lingus, British Airways, Iberia and Vueling, making it the world’s sixth largest airline group. Mr Cox says its share price has nosedived since Brexit. “Over a third of its revenues come from the UK, which will hit reported profits.” The travel industry has also been hit by terrorism, while IAG has suffered more than 20 European strikes in this year. Now could be a good time to invest before its share price climbs higher, Mr Cox advises.
* All stock prices as of September 13.
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