Decent engineers at dirt-cheap prices.
You don't need me to tell you that the past month has thrown up some enticing bargains. After four weeks of market turmoil, London's flagship FTSE 100 index has shed almost a thousand points, and canny investors have been able to pick up shares at rock-bottom prices.
But the market rout has had several causes, not just one. Which has opened up something of a window of opportunity for investors with an eye on some of Britain's blue-chip engineers.
For while they're not exposed to worries over such things as sovereign debt, the euro, and bank capital ratios, engineers are exposed to worries about economic growth. And with talk of a double-dip in America, and turgid growth here in the UK, shares of some of Britain's best engineering companies have been severely battered.
So here are three blue-chip picks, each firmly priced into territory that screams "bargain".
In the depths of the recession, shares of GKN (LSE: GKN) slumped over 80% to just 41 pence, thanks to the company's exposure to the global automotive industry. But the rebound was almost as rapid as the fall, and the share price quickly powered upwards to around 230 pence.
But the business that came out of recession wasn't the one that went into it. Three years on, GKN is now much more efficient, with costs stripped out and factories closed. It's also better-diversified, with the aerospace operation beefed-up by the acquisition of the business that manufactures aircraft wings for Airbus.
Priced today at 192 pence, GKN is trading on a forecast P/E of 7, and a prospective yield of 4.5%. Cheap? I think so.
IMI (LSE: IMI) is one of the most boring businesses I know. But over the past twenty years, the company has successfully diversified out of dull metal-bashing, and into niche sectors where it can command a major market presence.
It's also very much a global business, and has built up a significant market share in fluid power, drinks dispensing equipment, indoor climate control, and equipment for 'severe service' applications in the petrochemical and oil and gas industries.
It quickly shrugged off the recession, and last year powered its way into the FTSE 100. But this year has brought an abrupt reversal of fortunes, with the share price slumping from 1123 pence in early July to 731 pence on 22 August. That's a much steeper fall than the market generally, and also one that has occurred in the complete absence of any bad news from the company.
Last week, needless to say, IMI delivered another set of sparkling results, and the share price has recovered to today's 838 pence. At which point, it's on a prospective P/E of 9, and is yielding 4%. Cheap? I'd say so.
Founded by aviation pioneer Sir Alan Cobham in 1934, aerospace and defence firm Cobham (LSE: COB) has long been bracketed with Rolls-Royce (LSE: RR) as a expensive low-yield solid growth pick.
No longer. Worries about ongoing defence contracts in the wake of government cutback both here and in the United States saw the share price sag last year, and the past month's market turmoil has added to the gloom. After years of comfortably outperforming the FTSE 100 -- of which it's no longer a member -- the past three months have seen the business underperform the FTSE, and today the shares can be picked up at 184 pence.
As such, they're trading on a forecast P/E of just 8, which is simply dirt cheap for a global technology leader. What's more, buy the shares, and you'll be rewarded with a 3.9% yield while you wait for the inevitable recovery. Cheap? Undoubtedly.
As I said earlier, the shares of all three companies have been driven down by a combination of market volatility and worries about a second recession. And while such worries are not without foundation -- especially in the United States -- the signals are decidedly mixed.
My view is that the shares of all three are trading as if the global economy was already mired in recession, rather than -- possibly -- just skirting one. And as such, they're priced firmly into bargain territory.
With solid Buffett-style moats, these shares are simply too cheap.
More from Malcolm Wheatley:
> Malcolm owns shares in GKN and Rolls-Royce.