The FTSE 100‘s packed with beaten-down bargain shares right now. My research shows that 27 blue-chip shares have fallen by 10% or more in the last six months. This provides plenty of compelling buying opportunities.
Things are likely to get worse before they get better for many of these Footsie fallers. But for patient investors, I believe a lot of these shares could be brilliant recovery shares to consider.
Here are two that have caught my eye.
Dirt cheap
I already hold Persimmon (LSE:PSN) shares. If I didn’t, I’d look at opening a position in the housebuilder today. Its 19% share price fall over six months leaves it on a forward price-to-earnings (P/E) ratio of 10.4. Furthermore, the firm’s P/E-to-growth (PEG) is also inside bargain basement territory below 1 (0.7).
Times are tough for housebuilders as buyer demand dries up. UK construction output fell at the fastest pace in six years in May, S&P Global says, with the residential sector especially weak due to unfavourable market conditions and headwinds from elevated borrowing costs.
Yet in my view, the long-term outlook remains as strong as ever. Housing supply is extremely limited, and is worsened still by weak construction rates. When borrowing conditions improve, the current dip in building activity could give price growth — and with Persimmon’s profits — an extra boost.
The government believes 300,000 new homes are needed each year to meet the needs of Britain’s growing population. And Persimmon’s huge land bank puts it in great shape to capitalise on the eventual market recovery. Its reserve of 84,879 plots is equivalent to roughly seven years of supply.
Critically, around roughly 90% of this land bank has been earmarked for affordable homes too, a segment where the supply crunch is particularly severe.
Another FTSE bargain?
Sage Group‘s (LSE:SGE) a FTSE 100 share I’ve recently bought for my portfolio. Why? It’s slumped 18% in value over the last six months, providing me with an excellent opportunity to open a position.
The software giant’s shares have gained ground since I bought in. But they still offer excellent value, with a P/E ratio of just 19.2. That’s significantly below the 10-year average of 31-32.
Sage allows companies to simply manage a multitude of critical business functions. These include:
- Accounting.
- Payroll.
- Human resources.
- Enterprise resource planning (ERP).
Yet like other Software-as-a-Service (Saas) providers, its slumped in value due to rising AI risks. Investors are asking how much the Footsie firm’s profits will be impacted if firm’s switch to cheaper AI-based solutions.
It’s a good question. But in my view, these fears are hugely overblown. Sage’s services aren’t expensive, so the question is: to what extent will companies delegate critical processes to new AI agents just to save a few pounds? I’m unconvinced we’ll see a mass migration from reputable service providers.
Overall, I’m still expecting Sage’s profits to continue growing steadily as firms increasingly digitise their operations.
Should you invest £5,000 in Persimmon Plc right now?
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Royston Wild owns shares in Persimmon and Sage.
