IGAS Energy (LSE: IGAS),Standard Chartered (LSE: STAN), and Sainsburys (LSE: SBRY) three different investments, all trading close to their one-year lows. If you smell a bargain, here are a few things you ought to consider before snapping them up.
I have always been bearish on IGAS and I havent made up my mind as yet, but I acknowledge that at 20p a share this shale gasdeveloperhas become particularly tempting.
When it announced its final results on 26 JuneIGAS traded around 26p, but market volatility has meant value deterioration for a company whose latest financials arent particularly promising cash is down, net debt is up, revenues are falling and losses are widening. Still, it has close relationships with suchpartners such asTotal E&P UK, GDF Suez E&P UK and Ineos.So, the bulls could argue, if it gets in trouble it will likely be bailed out!
After all, it could easily attract a bid: its price-to-book value signals stress and its stock is dirt cheap, given that it trades close to the low end of its 52-week range (18.25p-92.75p). However, thats not a good enough reason to buy.
Lack of trust
Another stock that reminds me a of stressed bond is Sainsburys. It trades at 226p, which is very close to the low end of its 52-week range of221.1p288.4p.
The food retailer bears the hallmarks of an appealing investment based on trading multiples and net worth metrics. The problem, as you might know, is that trust has gone out of the window in the food retail sector and a huge amount of pressure is being felt on trading profits and core margins. Recent market share figures show that Sainsburys is holding up relatively well, at least compared to Tesco and Morrisons, and at 10x its forward earnings youd be buying a stock that trades at a discount of about 40% against the FTSE 100s long-term average.
The real problem is that nobody can firmly say if or whenmarket share erosion will stop and whether the current business model of the top four food retailers in the UK is destined to live or die. Tesco is shrinking, while Morrisons recently offloaded its convenience stores, but no-frillsdiscounters Aldi and Lidl continue to invest in organic growth, gaining share.Id argue that whilst Sainsbury is certainly not safe yet, its a safer investment than Standard Chartered but Id rather buy the shares of the latter if I were to embrace equity risk.
Most trading metrics signal stress and at 660p a share, Standard Chartered trades very close to the low end of its 52-week range (648.3p-1,174p). I think that its valuation already prices in the risk of a large cash call and another dividend cut, neither of which is strictly necessary, in my view, although certain analysts and pundits have argued in favour of a rights issues as big as $10bn to fix its balance sheet.
Market volatility, weakness in commodity prices and all sorts of speculations are killing the investment case, and it couldnt be otherwise in the light of Standard Chartereds exposure.I hold faith, however, in its new management team, while a few other elements suggest that this could easily become a stock to hold as part of a diversified portfolio namely, restructuring potential, possible appetite for some of its assets and stronger corporate governance rules.
Its not going to be easy but it could be worth it at this price.
Similarly, a few other opportunities outside the banking sectorshould catch your attention if you are after long-term value.
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