For bargain hunters, the signs are looking promising.
These are, indeed, difficult times. A few short weeks ago, the FTSE 100 (UKX) was up at 5,965, with talk of 6,000 and beyond colouring our thoughts.
And now, we're hovering around 5,500, having dipped below 5,300 on several occasions. The heady confidence of early spring, in short, seems like another world. What's happened?
The mood has changed, principally. It's clear that global demand has weakened significantly, and that the eurozone's travails are deeper than previously thought. Here at home, you've only got to look at the latest inflation figures. Further afield, markets tanked yesterday on news of weak manufacturing data from in China, the United States and the eurozone.
More gloom to come?
Of course, some will say: 'I told you so'. As I wrote in December, for instance, Deutsche Bank were saying as far back as last September that there could be three more recessions in the next decade -- with the first hitting us around now.
I don't have to tell you that the UK is now in a technical recession, Europe is in a deeper one, and economic activity is slowing down sharply in China and the United States.
Throw in Moody's downgrading of 15 major global banks -- including Royal Bank of Scotland (LSE: RBS), HSBC (LSE: HSBA) and Barclays (LSE: BARC) -- and the mood music is sounding decidedly more downbeat than back in April.
Don't panic, Mr Mainwaring!
At times like these, I'm minded to ask myself what Ben Graham would be doing. Or Warren Buffett. Or Sir John Templeton -- all three of them being renowned value investors with a track record of capitalising on uncertain times to grab juicy bargains.
In short, around the corner could be just the time to pick up some of those juicy bargains -- decent businesses with share prices driven down by adverse sentiment.
Buffett in particular, for instance, is well known for making big contrarian calls -- perhaps because the examples of him doing so are the most recent. At the height of the credit crunch, for example, he locked in some remarkable deals with America's General Electric (NYSE: GE.US) and Goldman Sachs (NYSE: GS.US).
Don't go with the pack
Take the views of Sir John Templeton, who died in 2008. "If you buy the same securities that everyone else is buying, you will have the same results as everyone else."
Instead, he urged: "Heed the words of the great pioneer of stock analysis, Benjamin Graham: 'Buy when most people -- including experts -- are pessimistic, and sell when they are actively optimistic.'."
These days, the words of Buffett -- himself a former student at Benjamin Graham's investing classes, don't forget -- are more widely quoted, but amount to exactly the same thing: "Be fearful when others are greedy, and be greedy when others are fearful."
So what would Graham be buying?
In short, he'd be running the rule over some stocks, searching for juicy-looking bargains. For, as Buffett has famously pointed out, shares are a uniquely perverse commodity: people cheer when they go up in price, and mourn when they become cheaper. For just about everything else, it's the reverse.
Indeed, as I've written before, back when Rolls-Royce (LSE: RR) was plagued by an exploding engine on a Qantas jet, and the doomsters were deserting the shares in drives, I picked up a decent slug of them at 598p. They're now at 846p -- and meanwhile, the FTSE has largely gone nowhere. My only regret: not buying more.
And earlier this month, I picked up some shares in another FTSE 100 blue chip, at a price that it last reached in December 2008. Since then, it's grown its sales, profits and dividends.
Coincidentally, Warren Buffett has been buying exactly the same stock -- and, what's more, doing what I've been doing: buying more, on dips in the share price. Discover its name in this free special report from The Motley Fool: "The One UK Share Warren Buffett Loves". It's free, so what have you got to lose?
Where to look?
Now, when shares are priced in 'screaming buy' territory, investors need strong nerves. And it's a fact that not every investor has the nerve required.
When the FTSE slumped to below 3,500 on 9 March 2009, for instance, plenty of investors stayed on the sidelines for months afterwards -- thereby missing out on the ensuing 50% rise in London's flagship index.
And that's the point: it's not about buying when others are pretending to be fearful, or mildly worried, or idly thinking about selling. It's about buying when people are genuinely rushing for the exit -- or the bathroom -- as fast as they can. And it takes strong nerves and a strong stomach.
Five to follow
So here, without further ado, are five businesses that look to me to be too cheap. They're not classical Benjamin Graham shares on every metric, but then, few companies are. Debt, for instance, precludes many. Nevertheless, if Graham were alive today, I reckon that these five would be among the prospective picks that he'd be running his rule over, watching and waiting.
Not with a view to buying today or even next week, necessarily -- but to do the groundwork in preparation for a buy should the share price become significantly cheaper in the weeks ahead.
|Company||Closing price 21 June||Forecast yield||Forecast P/E|
|Aviva (LSE: AV)||278p||10.3%||4.7|
|HSBC (LSE: HSBA)||559p||5.6%||8.5|
|Tesco (LSE: TSCO)||310p||5.5%||8.4|
|AstraZeneca (LSE: AZN)||2778p||7.1%||7.3|
|BAE Systems (LSE: BA)||290p||7.3%||6.9|
To me, all these companies seem solid businesses with share prices that have been dragged down by the market's general travails.
Indeed, Aviva's yield, at above 10%, seems remarkable. But there's no quibbling with the dividend cover -- of nearly 2 -- and no sign of the meltdown that the doomsayers have been predicting.
Would Benjamin Graham buy them? Sadly, we've no way of finding out: he died in 1976. What I can say, though, is that Graham's student Buffett owns a decent-sized stake in at least one of them.
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