Fears of inflation, recession, and rising interest rates have been pushing down share prices this year. The FTSE 100 is down around 2% since the beginning of January (although up over 4% in a year).
Sometimes, falling share prices can provide investors with great opportunities. But the fact that a business is selling for less than it was before doesnāt automatically mean that itās worth buying.
5 Stocks For Trying To Build Wealth After 50
Markets around the world are reeling from the current situation in Ukraineā¦ and with so many great companies trading at what look to be ādiscount-binā prices, now could be the time for savvy investors to snap up some potential bargains.
But whether youāre a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.
Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheavalā¦
Weāre sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50ās.
Two companies in the FTSE 100 have been catching my eye lately. Both have falling share prices. One of them Iād buy today, the other Iād stay away from.
Iād buy Rightmove
Iāve had an eye on Rightmove (LSE:RMV) shares for some time now, but Iāve never been convinced by the price its stock was trading at. The share price has come down 32% since January though, and itās now at a level where Iām comfortable buying.
At current prices, Rightmove shares value the entire business at Ā£4.468bn. In exchange, an investor would get a company thatās generating around Ā£195m in free cash each year, with just under Ā£32m in net cash on its balance sheet.
From an investment perspective, that looks to me like I can expect a return of around 4.38% per year at todayās prices. When the share price was around 790p at the start of the year, the equation looked different to me. But at 530p per share, Iād buy shares for my portfolio.
Thereās a real risk that Rightmoveās share price might be heading lower in the next few months or even years as the UK housing market comes under pressure. For me though, investing isnāt about buying shares when theyāre at their lowest point, itās about buying shares when Iām getting enough for my money in return. And at these prices, I think Rightmove is offering me enough for it to be worth buying shares for my portfolio.
Iād avoid Diageo
On the other side, Iām staying away from shares in Diageo (LSE:DGE). The share price is down around 8% since the beginning of the year, but I still donāt see that thereās enough value for me at current levels.
[Fool_stock_chart ticker=LSE:DGE]
Diageoās current share price implies a total valuation for the company of just under Ā£87bn. In return, an investor buying shares today would acquire a company with a further Ā£12bn in debt generating Ā£2.8bn in free cash per year.
From an investment perspective, that looks to me like a return of around 2.86% per year. Compared to Rightmove, thatās just not attractive to me.
I think Diageo is a fantastic business. The company has some superb brands, which allow it to generate Ā£4.2bn in operating income using Ā£4.8bn in fixed assets.
Iād love to own its shares. But even though the price has come down since January, Diageo shares just arenāt attractive enough to me from an investment perspective at current levels.
Conclusion
Both Rightmove and Diageo have seen significant declines in their share prices since the start of the year. But I think the decline in Rightmoveās price is a buying opportunity for me. Diageo? Not so much.
Where Rightmoveās shares has fallen to a level that implies a free cash flow yield over over 4%, Diageoās stock is priced for a return of under 3%. So Iām putting my money into Rightmove.
This post was originally published on Motley Fool
