Investment bargains this Black Friday

Shopaholics have had Friday 25th November etched onto their calendars for months as it’s the annual Black Friday buying frenzy. This is the date retailers slash their prices dramatically to lure shoppers into parting with their cash ahead of the festive season.

Traditionally, the event marks the start of Christmas shopping in the United States but has become a fixture in the UK over recent years. For investors, finding a bargain can be just as exciting. Here, highlight some stock market bargains that fund managers have been picking up in a challenging year.

Trustpilot

The global review platform, which enables people to share their opinions on businesses, has had a challenging year but the stock has been recovering.

This has benefitted the ES R&M UK recovery fund, which aims to find undervalued companies yet to deliver on their potential. According to Hugh Sergeant, the fund’s manager, his overweight position in smaller companies such as Trustpilot was positive as these stocks started to rally.

“As levels of uncertainty ramp up my message remains the same: there are some amazing bargains out there,” he said. “The UK and global stocks that make up our hunting ground are really very cheap now.” He pointed out small and mid-cap equities were on bargain basements valuations. “Any equity (and now bond) that has uncertainty associated with it is very depressed,” he added.

Travis Perkins

The UK builders’ merchant and home improvement retailer found its shares had sold off aggressively along with other consumer stocks this year. However, this provided an opportunity for the Ninety One UK Special Situations fund, which is run by Alessandro Dicorrado and Steve Woolley.

In a quarterly update, the managers revealed they had added the stock to the portfolio. “We like the long-term prospects of the business and its strong balance sheet,” they wrote. As far as the wider financial markets are concerned, the duo has witnessed “some extraordinary things”, not least of which in the UK.

“A combination of inflationary pressures, central bank comments and government policy have resulted in sharp sell-offs in seemingly the full suite of UK financial asset classes, from stocks, to bonds, to sterling itself,” they added.

Grafton Group

The international building materials distributor and DIY retailer recently revealed that like-for-like revenue between July and October 2022 was up on last year. The stock has helped drive returns at the SVM UK Opportunities fund that’s run by Neil Veitch and Craig Jeruzal.

In a recent update, the managers highlighted what they liked about the business and the potential it appears to offer investors. “We used the sell-off in Grafton Group to initiate a position,” they wrote. “The shares have fallen back to where they were in 2014 despite earnings per share having increased by c.200% and the group having £520m cash (ex-leases) on the balance sheet.”

The duo also pointed out that most of their UK domestic-exposed holdings had already fallen 40-50% and were discounting quite significant declines in earnings. “Many of these are household names who we are confident will exit the recession in a better competitive position than when they entered. Once economies stabilise and CEO’s feel more comfortable with their own businesses, we expect M&A activity to pick up,” they added.

Stanley Black and Decker

The world’s largest tools company has become a new position in the Schroder Global Recovery fund managed by Nick Kirrage, Simon Adler, and Andrew Lyddon.

“The stock screened in the cheapest part of the market earlier this year, but at the time there was not enough upside for us to invest,” they said recently. “Its interim results disappointed investors: earnings guidance was reduced, and inventory continued to grow, dragging the business’s free-cash-flow into negative territory. The share price subsequently fell through our re-visit price, so we looked at the business again.”

“The balance sheet has deteriorated a little, but we believe we are compensated by the upside to fair value,” the managers continued. “The market’s cyclical concerns are fully discounted in the price, and the company has said it is not letting this tougher period go to waste by delivering $1bn of structural cost savings over the coming year. Its strong market positions and well-established brands should help Stanley Black and Decker weather any downturn in construction markets as economic growth slows.”

u-blox

This Swiss company creates wireless semiconductors and modules for consumer, automotive and industrial markets. Currently, it’s the largest stock position in the IFSL Marlborough European Special Situations fund, which is on the Chelsea Core Selection.

“In a Q&A earlier this year, lead manager David Walton outlined what he liked about the business and why it occupied such a prominent position in the portfolio.

“It’s an example of a business we believe can continue to deliver strong growth, despite wider economic uncertainty, and we’ve used market falls to increase our holding,” he said.

He pointed out that u-blox had successfully redesigned its products to work around semiconductor shortages. “It’s a well-managed business and the long-term trend driving increasing demand for the company’s products remains strong,” he added.

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views expressed are those of the author and fund managers and do not constitute financial advice.