Action in the stock market has certainly livened up the summer this year, as household names such as Provident Financial, Dixons Carphone and the AA have seen millions sheared off their share price after a series of unfortunate events.
Despite these headline casualties, companies whcih suffer such a drop may still hold value. Canaccord Genuity Wealth Management has compiled a list of “bottom-fishing” stocks – those which are cheap due to an inherent problem with the company, but may bounce back.
“We've done some research looking at some equities we feel have been sold off indiscriminately, but where analysts who cover the stocks are being more positive,” said Canaccord's senior equity analyst Simon McGarry.
“You might call it bottom fishing, but we feel it's a bit more insightful than that. It's looking at stocks that have had a tough time, but might be suffering from 'herd syndrome' where investors have fallen over each other in their rush to get out.”
In general, McGarry noted, second-quarter results for UK equity markets were positive. The FTSE 350 and FTSE 250 grew sales by 5.7 per cent and 8.3 per cent respectively year-on-year, while almost a third fewer companies issued profit warnings compared to the second quarter last year.
But there was a spike in the number of companies which were being sold off aggressively in response to bad news.
The 11 best companies for bottom-fishing
The companies on Canaccord's current bottom-fishing list are those which seem to have been sold off indiscriminately but which analysts are viewing more positively.
The key characteristics picked up by Canaccord's “equity screen” are where a company is trading at more than 20 per cent below its 12-month high, where earnings per share (EPS) are forecast to grow over the next 12 months and where analysts have been revising their estimates for the current-year projected earnings upwards.
|Company name||Current share price as a percentage of the 12-month high||Change in consensus EPS over three months|
|Imagination Technologies||44.9 per cent||5.8 per cent|
|IP Group||56.3 per cent||610.6 per cent|
|Kenmare Resources||71.3 per cent||Zero per cent|
|Cairn Energy||71.4 per cent||28.4 per cent|
|Serco||72.4 per cent||1.1 per cent|
|Ladbrokes Coral||76 per cent||Zero per cent|
|Virgin Money UK||76.2 per cent||2.3 per cent|
|Imperial Brands||77.2 per cent||0.1 per cent|
|Indus Gas||77.2 per cent||0.3 per cent|
|Dignity||78 per cent||0.6 per cent|
|Redde||78.1 per cent||Five per cent|