Click hGood companies trading on low PERs can be found in different corners of the market, where neglect, fear or misunderstanding brings them low. Here are some categories:
The uncertainty associated with companies going through these transitional periods discourages most investors and the over-reaction that develops can push stock prices below reasonable levels.
An example is Wynnstay Group, the agricultural merchant, in 2019 and early 2020 when it was trading around £3 because of the uncertainty associated with farmer support and potential blocks on exports. It’s now £5.30.
Uncertainty can provide an excellent opportunity to the more analytical and patient investor, but there must be sound reasoning and clear rationale that the company will emerge from this transformation stronger.
If the share is standing on a low PER, you have every reason to assume reasonable growth and if it meets other criteria (e.g. sound management and strategy; low financial distress risk) then take courage and go against the crowd.
Currently, the negative sentiment towards oil and gas – a “dirty” business, according to people speaking in natural-gas-heated offices and driving home later in their diesel cars. With all those engineers and a will to turn green they might end up being the biggest players in turbines, charging points, solar panels and green hydrogen production one day.
This was the case for Capital and Counties, owner of most of Covent Garden, last year when tourists and office workers abandoned central London. I bought in November 2020 at 103p and sold at 174p in September 2021. Apparently everything is going to OK now and people will return to central London so Mr Market is happy to pay a full price for Capco.
Smiths News, a local monopolist or national oligopolist distributer of newspapers, was bought into my portfolio at 15.1p in 2020. It is still, after rising to 37p, on a PER of under 4. And I’m holding until Mr Market pays proper attention to the stability of the cash flows.
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