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It’s been a good year or so for the FTSE 100, but that doesn’t mean every stock has been climbing. As ever, there are plenty of losers among the winners. That suits me. While some investors like to chase momentum, others prefer out-of-favour stocks, hoping to benefit when they swing back into form.
That’s something I do myself. Investment performance can be cyclical, and it’s a great feeling when an undervalued stock suddenly takes off. Can these three long-term losers start to show their comeback potential?
Barratt Redrow needs underpinning
These are tough times for housebuilders, and last year was no exception, with the Barratt Redrow (LSE: BTRW) share price falling 11%. It’s down 45% over five years. A full decade ago the shares traded around 600p. Today, they stand at 375p.
Brexit, high inflation and mortgage rates, and the end of the Help-to-Buy scheme have all hit demand for new homes, while rising labour and materials costs squeezed margins. The cladding fire safety scandal didn’t help.
There are brighter signs emerging, as housing demand picks up after Budget uncertainty and interest rates slide. Barratt Redrow looks decent value on a price-to-earnings ratio (P/E) of 14.8, while the trailing yield has crept up to 4.7%. This could be a once-in-a-decade chance to buy at a low price, before the outlook improves. No guarantees though, as the UK economy remains fragile and affordability is still an issue.
Croda is getting cheaper
Croda International (LSE: CRDA) is another long-term struggler that intrigues me. It makes speciality chemicals used in beauty, agriculture, and life sciences, and demand surged during the pandemic as customers stockpiled vital materials.
The shares spiked to around 10,000p in 2020, then plunged as orders slumped. At today’s 2,650p, they’re lower than they were a decade ago. Today might mark a potential turning point, as customers have mostly worked through their pandemic inventories, and sales start to recover.
Croda’s dividend yield has climbed to 4.2%, and the shares look better value than they have done for ages, on a P/E of 18.9. But Croda still has work to do on sales and margins, and I don’t think it’s quite there yet.
Mondi continues to struggle
Paper and packaging specialist Mondi (LSE: MNDI) is another FTSE 100 stock trading below its level a decade ago. After booming during the initial e-commerce boom and again during the pandemic, when we were glued to our screens at home, its shares slumped as the cost-of-living crisis hit demand. They’re down 25% over the last year and 50% over five.
I suspect we may have to wait a while longer for the recovery, as consumers continue to feel the squeeze, hitting demand, while key markets are oversupplied and the price of paper falls. However, the forward yield of 5.1% should offer some consolation, while the shares look good value. With a P/E of 12.4, Mondi is cheapest of the three.
All three are worth considering, but Croda and Mondi may need another year or two before they show their mettle, while falling interest rates could make Barratt Redrow the more immediate turnaround play. The next decade should be better than the last for this underperforming trio, but investors may need to be patient.
