Its never pleasant to watch the share prices of relatively new investments take a dive. After all, youve done the necessary research, looked at future prospects and youre satisfied that management seems to knowwhat itsdoing. You may even be willing to overlook the massive remuneration that some executives in certain companies receive.
The brutal truth is that the market doesnt care about us or when we invested. And thats fine. As private investors, we all have an edge that fund managers dont, namely time. Share prices can dropfor reasons outside of acompanys controlbut if the investment story still holds and a need for cash isnt forcing your hand, it makes sense to hang on and allow the market to realise the businesss true value. Today, Ill be looking at two companies that haveseen recent price declines andwhy Im content to do absolutely nothing in the short term.
Just turbulence?
Shares in Easyjet(LSE:EZJ) have declinedfrom 1866p in March 2015 to 1470p today, a drop of over 21% in roughly 14 months. Ordinarily, this would suggest that a company has come unstuck. So lets check the latesthalf-yearreport, released on 10 May.
Revenue was very slightly up to 1,771m and passenger numbers grew 7.4% to 31m. The load factor was stable at 89.7%. According to the board, this positive set of figures indicates that the5.8bn capis well placed to grow revenue and profit this financial year and deliver sustainable returns and growth for shareholders. While a recovery in the oil price wont be welcomed by this or any other airline, these figures dont indicatea struggling business. An increase in the dividend was also great news for shareholders. Offering a yield of 4.5%, this share still holdsplenty of appealfor me.
Viva Aviva!
Aviva(LSE:AV), the 17bn cap life insurer and asset manager,has been turning around for so long its perhaps understandable ifinvestorsare feeling a little dizzy and frustrated. While the red figure in my portfolioisnt pleasant to look at (whichhighlightswhy weshouldnt look at ourholdingstoo often), Im staying invested. CEO Mark Wilsons strategy and the integration of Friends Life seems to be working. In March, Aviva reported a 20% rise in operating profit and welcomed 625m in new business from the UK and Ireland. Like Easyjet, itsalso shown commitment to growing its dividendwith a rise of 15% onlast years final payout. With interest rates on cash deposits still punishingly low, investors looking for income may be tempted to add Aviva to their holdings and I wouldnt blame them.
Holding the line
The recent volatility in the share prices of Easyjet and Aviva is unwelcome. However, Im sticking by these FTSE100 giants for now.Both companies offer generous, growing, yields that are easily covered by earnings and are run by experienced boards. Both alsoappear to have solid, achievable, goals for the future.
Indeed, if youre considering investing in either company, now may be as good a time as any to do so. Easyjets shares currently trade on a forecast P/E ratio ofa littleover 9, according to Stockopedia. Avivas stock is evencheaper at just under 9. Based on the belief that a P/E ratio of around 15 offers fair value, both companiesshould be attractiveto investors content to give their holdings time to breathe.
Paul Summers owns shares in easyJet and Aviva. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
