Are J Sainsbury plc, Dixons Carphone plc and GVC Holdings plc today's top value buys?
Volatile markets often create great buying opportunities for investors with cool heads and ready cash.
Is this downbeat outlook fair?
Shares in the UK's second-largest supermarket have fallen by about 20% since the end of April when they peaked at more than 290p. Sainsbury now trades on 11 times forecast earnings, with a prospective dividend yield of 4.4%.
However, unless you believe Sainsbury's earnings are about to collapse, this valuation is considerably more attractive than both Tesco and Wm Morrison Supermarkets. These groups trade on much higher earnings multiples and offer much lower dividend yields. Indeed, Tesco currently offers no dividend at all.
A further value attraction is that Sainsbury trades at a 25% discount to its tangible net asset value. This should provide decent protection against further share price falls.
The elephant in the room is the group's acquisition of Argos owner Home Retail Group. This is expected to complete later this year, but investors aren't yet convinced Argos -- which has very low profit margins -- will enhance Sainsbury's business.
Markets hate uncertainty, so Sainsbury's could remain cheap for a while yet. But now may not be a bad time to buy.
Unfair Brexit casualty?
Shares in electronics retailer Dixons Carphone were battered by Brexit. They're now worth 26% less than they were a month ago. I'm not sure this harsh view is justified.
The group now trades on a 2016/17 forecast P/E of just 10, falling to 9.2 for the following year. Dixons Carphone shares also offer a forecast yield of 3.5% for this year, which should be generously covered by both cash flow and earnings.
The group's stated position is that Brexit shouldn't harm its business. Chief executive Seb James has said Brexit may even lead to new growth opportunities in the UK market. It's too early to be certain how Brexit will affect Dixons Carphone, but I'm tempted to say that the stock looks quite good value at the moment.
Good odds on a successful turnaround
Online gaming group GVC Holdings made a big bet of its own earlier this year when it completed the acquisition of its lossmaking peer, bwin.party Digital Entertainment.
GVC is betting it will be able to maintain its successful track record of converting what the group describes as "challenging acquisitions" into highly profitable businesses. By using GVC's core technical systems, costs should come down.
Existing operations generated an operating margin of 11% last year. If GVC can generate similar profit margins from the bwin.party assets, then profits could rocket. Earnings per share are expected to fall to EUR0.37 this year, before rising by 55% to EUR0.58 in 2017. This puts GVC on a 2017 forecast P/E of 12.6, which seems reasonable.
GVC's dividend has been suspended this year to help reduce debt. But a forecast yield of 4.6% is expected for 2017.
GVC is planning a move to a premium FTSE listing and hopes to join the FTSE 250. Now could be a good time to buy, ahead of forced buying from index-listed funds and other institutional investors.
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Roland Head owns shares of Wm Morrison Supermarkets and Tesco. The Motley Fool UK has recommended GVC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.