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UK sell-off: looking for stocks that have been unfairly sold down
Look beyond the headline indices and you’ll see some brutal damage to investment portfolios over the past month or so.
While the FTSE All-Share index, which is a good representation of the UK stock market, is down 2.4% since its year-to-date peak on 6 September, Shares has found that 502 London-listed stocks have seen a share price decline of 10% or greater in those five weeks.
That paints a different picture to the mainstream news which would suggest that global markets have had a wobble of late, but nothing too serious.
Since the FTSE All-Share peaked last month, 72 stocks have fallen by more than 25%. Some of these names were big winners in 2020, such as Polarean Imaging (POLX:AIM) which recorded a 209% share price gain last year. It has fallen by 32% in the past five weeks after the US authorities rejected its new drug application.
Parsley Box (MEAL:AIM) is down 65% in five weeks and is now trading 79% lower than the 200p at which it first joined the market in March, caused by two big downgrades to earnings guidance in quick succession.
In these situations, there was specific news driving the stock down. But that wasn’t case across the board. There has been some indiscriminate selling as investors became spooked by broad inflation issues, the energy crisis and the prospect of interest rates going up sooner than previously expected.
For the savvy investor, now is the opportune time to sift through the wreckage to see if the market has oversold any stocks.
Musical equipment specialist Gear4Music (G4M:AIM) is down by 23% in the past five weeks, no doubt as investors fret over product availability and potential shipping delays. While these are clear risks, investors must ask if this potential bad news is now already priced in.
It is harder to understand why Homeserve (HSV) is down 18% in just over a month. Demand for its home emergency services won’t be affected by inflation, supply chains or interest rates, beyond the customer’s ability to afford its policies. Given they are not very expensive, one can only suggest its shares have suffered from investors selling indiscriminately.
The one stock that really catches our eye is online greeting cards seller Moonpig (MOON). The shares are down 19% in five weeks, yet analysts have been upgrading earnings forecasts. Earnings upgrades are traditionally a catalyst for pushing up a share price.
Chairwomen Kate Swann saw the opportunity to buy more stock at a better price, investing £199,086 of her own money in Moonpig shares on 6 October.
The big question is whether Moonpig’s shares were priced too high before the recent pullback or whether they are now too cheap.
Among the analyst community, Jefferies calls the stock ‘attractive’, but Davy says the valuation looks full, even after the recent share price retreat.
It’s well worth studying price movements such as the ones we’ve just seen as you never know what opportunities they throw up. As for the split analyst views on Moonpig, a difference in opinion is what makes a market.