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I think that FTSE 100 as well as FTSE 250 great places for value investors to look for stocks to buy. And there are a couple I’ve been watching for a while.
In both cases, things have become more interesting than before. So I think both are worth a closer look.
Vistry
One of the interesting things about profit warnings is that there never seems to be one of them. And on Friday (8 November) Vistry (LSE:VTY) has released a second one to go along with the October one.
The stock fell 20% after the company announced that costing errors that caused a 35% decline last month were worse than expected. The new estimate is an error of £165m, rather than £115.
That’s not a good thing, but it was a very positive sign for investors. Another thing is that this company has done an independent investigation and found that these issues are focused on one part.
Another thing is that Vistry is sticking to its refund policy. That means £1bn has been returned to shareholders through a combination of equity and share buybacks over the medium term.
If it can achieve this, the stock looks like an amazing value. The FTSE 100 housebuilder has a market cap of £2.35bn, meaning shareholders could be in line for a 42% return.
UK housebuilders are reviewed by the Competition and Markets Authority. And while I thought that made them more dangerous, the recent drop would make Vistry too cheap to ignore.
Dr. Martens
I sold my shares Dr. Martens (LSE:DOCS) when it looked like the company was going to be taken private. But I’m thinking about buying them again.
The stock has underperformed since joining the FTSE 250 in 2021. But I think the positive outlook for the US economy may mean things are looking up for business.
One reason – although not the only one – the business has been struggling is weak demand in the US. Revenues declined in the region, which reduced overall sales.
However, the change in government made investors predict economic growth in the short term. And if that happens, it could relieve some of the pressure on Dr. Martens.
Obviously, the possibility of high prices is a big risk that designers should not ignore. There is a real chance that these could dampen any increase in demand for UK-made boots.
At a forward price-to-earnings (P/E) ratio of 20, the stock doesn’t look too cheap. But I think this could change quickly if US economic growth gets stronger.
Value traps
Sometimes, a falling stock can be a value trap when the underlying business is in chronic trouble. But I don’t think this is the case with Vistry or Dr. Martens.
In both cases, I think the problems faced by companies will turn out to be temporary. Investors may have to wait, but I expect both stocks to do well from here.
Right now, I like Vistry – if the company has its problems under control, the stock looks like an outstanding value. But as someone looking for stocks to buy, I consider both.
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