Should I buy beaten-down UK growth stocks today or conserve my cash for even bigger bargains?
The FTSE 100 is packed with top growth stocks. After recent volatility, many look a lot cheaper than just a couple of weeks ago. But is now the right time to dive in?
That question is surely on plenty of minds today. When the Iran conflict flared, markets wobbled as expected. Yet, so far, the FTSE 100 has held up reasonably well.
While it’s down 5% since the start of March, it’s worth remembering that the index ended February at an all-time high of 10,910. Over the 12 months, itâs still up roughly 20%, with dividends on top. That doesnât scream crisis to me.
Shopping in the FTSE 100 sale
Some sectors are thriving. Oil giants BP and Shell have surged about 20% in a month. Defence group BAE Systems is up 15%.
At times like this, I prefer hunting for stocks that have taken a knock and look better value as a result. Thereâs plenty to choose from. Barclays is down 17% and riding high on my shopping list. Spirits giant Diageo, Hikma Pharmaceuticals, British Airways owner International Consolidated Airlines Group and housebuilder Persimmon are all down 20%. Melrose Industries and Barratt Redrow have plunged around 25%.
All look worth considering with a long-term view, although Iâd want to do more research before parting with any cash. The biggest FTSE 100 faller is easyJet (LSE: EZJ). Itâs down more than 26% in the last month. The budget airline was struggling long before the current crisis. Its shares are down 25% over one year and 60% over five.
Iâve followed easyJet for a while, intrigued by its low price-to-earnings ratio. It’s hovered around 7.5 for months but has now slipped to just 5.5. On paper, that looks dirt cheap.
easyJet shares look cheap but carry risks
Whatâs striking is that the underlying business hasnât been doing too badly. Last November, the board reported a 9% rise in full-year pre-tax profits to £655m, ahead of expectations. Headline operating profit climbed 18% to £703m.
So why the gloom? Investors have been spooked by rising costs, geopolitical tensions, and pressure on European consumers, all of which could hit demand. A January update said trading was in line with expectations and summer bookings were building well, yet the shares barely responded. Now, with oil price and inflation fears running wild, sentiment has taken another hit.
This is a constant challenge with airlines. They’re on the front line of every shock. Recessions, pandemics, bad weather, war, and oil price swings can all play havoc. I think easyJet is worth considering with a long-term view. But with sentiment this fragile, it would take a brave investor to jump in right now.
The risk is that if investors wait for the perfect entry point, they tend to miss it. Nobody can successfully time the bottom of the market. The best thing I can suggest is to drip feed money in, to take advantage of reduced prices today. If those growth stocks become even bigger bargains, buy more. That’s what I’ll do with Barclays. easyJet is a little too risky for my liking. But I suspect that one day it will rocket back to form.
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Harvey Jones has positions in BAE Systems, Bp P.l.c., Diageo Plc, and International Consolidated Airlines Group. The Motley Fool UK has recommended BAE Systems, Barclays Plc, Barratt Redrow, Diageo Plc, Hikma Pharmaceuticals Plc, Melrose Industries Plc, and Persimmon Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
