If you’re looking to buy growth stocks for your ISA, it’s always nice to pick them up at a discount. Future gains start from a lower base, and dividend yields are often higher too. So do we have that opportunity today? I think we do.
To my surprise, the stock market hasn’t crashed on events in Iran. The FTSE 100 hit at an all-time high of 10,910 on 27 February, shortly before the bombing began. Yesterday (30 April), it traded a modest 6% lower at around 10,260. I’d have expected more. There’s still time.
Dig down and plenty of individual FTSE 100 stocks have taken a much bigger beating. UK housebuilders are trading near 10-year lows, as rising oil prices threaten to push up mortgage rates. But the weakness is broader than that. Autotrader, Croda, Diageo, Entain, Intertek, Legal & General, Reckitt, Rightmove, Smith & Nephew and Vodafone are all trading at similar levels to a decade ago.
Should I go shopping for cheap shares?
Their struggles stem from a variety of factors, not just geopolitics. Whatever the reason, they’re quality businesses that have been marked down significantly. Is this the right time to snap them up?
As energy shortages loom, I suspect markets will remain volatile for a while yet. The key is to take advantage of short-term dips, then hold for the long-term, to give them time to recover.
The stock market is inherently unpredictable. If the Strait of Hormuz reopens, the FTSE 100 could just as easily rocket towards 11,000 in May. If investors wait to catch the very bottom of the market, they’ll never buy shares at all. And why hang around when they are bargains out there today? Like distribution and outsourcing specialist Bunzl (LSE: BNZL).
I’d been desperate to buy it for years, waiting for a pull back to provide a more attractive entry point. Last year, I finally got it.
Bunzl supplies businesses with essential items such as safety and hygiene equipment, packaging, chemicals and protective gear. It’s not the most glamorous business, but management’s delivered impressive growth through an aggressive acquisition strategy, often buying up to a dozen companies globally each year.
Why wait when a stock’s this tempting?
The company also boasts a quite exceptional dividend track record, increasing its payout annually for more than three decades. So when the Bunzl share price crashed by a third in March last year, following a profit warning linked to weaker US sales and tariff pressures, I didn’t hang around. I bought it three times last year.
Beaten-down stocks rarely rebound overnight. Bunzl’s share price has been broadly flat over the past year, but now it’s showing signs of real progress. It jumped 17% jump in April. Yet the valuation remains reasonable, with a price-to-earnings ratio of 13.4. The trailing dividend yield is a solid 3.1%.
There are risks, of course. A global slowdown could derail Bunzl’s recovery, and US tariffs remain a worry. But with the shares still trading at 2016 levels, I think it’s well worth considering today. I can see plenty more compelling opportunities out there.
