This was a tough week for global markets, and many of you might be feeling slightly queasy after days spent watching your portfolios edge further and further into the red.
If you can take any consolation from all this doom and gloom, it’s that we’re all in this together: the S&P/ASX 200 dropped 4.6% last week, which was its worst weekly showing since January 2016.
And there might still be more volatility to come. US markets continued to swing wildly on Friday, with the Dow trading in a 1,000 point range from positive, to negative, to positive again.
The CBOE Volatility Index, which Wall Street refers to as the “fear index” and which represents the implied short-term volatility of the US stock market, still closed out the week twice as high as February 1. That was the day before the global equities rout first started.
But maybe there’s still a silver lining to all this cloud. Tumbling stock prices can turn up some real bargains – and so with the old adage “buy low, sell high” in mind, let’s look at two blue chip stocks that have had a tough week, but might now offer some value to opportunistic investors.
BHP Billiton Limited (ASX: BHP)
Shares in the world’s biggest miner plunged over 5% this week to close Friday afternoon trading at $29.13. But its performance over the last six months has been overwhelmingly positive. Since the last major pullback in its share price in June 2017, the company has gone from strength to strength. Its shares had surged around 40% since then and last month reach new multi-year highs of just over $32.
While praising BHP’s performance in its first half FY18 operational review, CEO Andrew Mackenzie forecast even better results to come over the full year.
He stated “the momentum we’ve built across the wider portfolio during the second quarter will flow through to an expected stronger second half operating performance. Together with incremental production from latent capacity projects in iron ore and copper, we expect volume growth of 6 per cent for the full year.”
After last week’s falls, BHP now trades at a multiple of 20.24x earnings, with a fully franked dividend yield of 3.64%
Challenger Ltd (ASX: CGF)
Challenger is one particular company which is standing to benefit from Australia’s ageing population. It is an investment management firm that specialises in providing annuities to retirees, giving them a stable source of income once they cash out their superannuation.
It has been a stellar long-term investment. Shareholders who purchased Challenger stock back in 2009 would now be sitting on gains of over 650%.
Its share price dropped 6% to $12.90 this week, with investors possibly concerned about the impact rising interest rates will have on its balance sheet.
But demand for its financial products from retirees should continue to be strong. The company’s outlook for FY18 is for growth in normalised net profit before tax of between 8% and 12%, and it will be interesting to see whether the company makes any changes to this when its first half FY18 results are released to the market on February 13.
Other big movers worth looking at closely include Beach Energy Ltd (ASX: BPT), which slid about 14% to $1.21, despite announcing a potentially significant gas field discovery in the Otway Basin. Rio Tinto Limited (ASX: RIO), dropped 2% despite declaring its highest ever full year dividend of US290 cents per share, and announcing that a $1 billion share buyback would be completed in FY18.
When the market is volatile, it’s important to take a long-term view. These sorts of corrections can provide level-headed investors with great buying opportunities. So if you’ve had your eye on a certain company for a little while, now might be a great time to snap it up on the cheap.
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Motley Fool contributor Rhys Brock has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Challenger Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.