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The stock market has been bumpy lately, and while the FTSE 100 has avoided the worst, it’s still throwing up plenty of opportunities to buy cheap shares.
I’ve spotted two blue chips whose share prices have dropped significantly in the last month, largely due to forces beyond their control. Patient investors might consider this a buying opportunity.
Sainsbury’s shares are being squeezed
The Sainsbury’s (LSE: SBRY) share price has dropped 10% in the last month and is down 6% over the past year. A key reason for the recent decline was a worrying update from rival grocer Asda on 14 March, which has vowed to recover lost ground against rivals by cutting prices, even at the cost of its short-term profitability.
If Asda lowers prices to compete with discount chains like Aldi and Lidl, Sainsbury’s may feel pressure to follow suit, squeezing its profit margins too. They’re already wafer thin at 1.6%, but had been forecast to increase to 3.2%. The broader supermarket sector is under strain due to the cost-of-living crisis, rising inflation, and uncertainty over the wider impact of trade tariffs on consumers.
Sainsbury’s remains the UK’s second-largest supermarket with a 15.7% market share, according to Kantar. That’s ahead of Asda’s 12.6%. The company posted a strong 3.8% rise in Christmas sales and expects full-year underlying retail operating profit to increase by 7%. That should see it hit the mid-point of its £1.01bn to £1.06bn guidance range.
The risk is that it falls short, hitting sentiment. Retail is a tough sector at the best of times, and these are not the best of times. Especially with employer’s national insurance and minimum wage hikes landing in April.
Yet the valuation looks attractive with a price-to-earnings (P/E) ratio of just 10.6. Meanwhile, its dividend yield has climbed to a juicy 5.65%.
Long-term investors might consider this a good chance to buy into a well-established business at a discounted price.
My second cheap pick is Intermediate Capital Group (LSE: ICG), an alternative asset manager specialising in private equity and debt investments.
Its shares have dropped 15% in the past month and are up just 3.6% over the last year. However, they’ve still surged 97% over five years, demonstrating their long-term growth potential.
Latest Q3 results, released on 22 January, showed assets under management (AUM) grew by 5.1% to $107bn. That’s a year-on-year increase of 27.5%. Fee-earning AUM rose 8.1% year on year to $71bn, reflecting strong demand for its investment strategies.
Intermediate Capital Group also reported $7.2bn in new fundraising during Q3, bringing its total for 2024 to $22bn. That’s more than double the 2023 number. This highlights its ability to attract capital and gives it a solid foundation for future earnings growth.
ICG could be hit by trade tariffs, an economic slowdown and subsequent drop in market sentiment. Private equity can be a volatile sector at the best of times. High interest rates don’t help, and inflation isn’t licked yet.
Yet for an investor waiting for an entry point into a high-quality alternative asset manager, this could be the moment to consider it. There’s a 3.85% trailing yield too.
Stock market volatility can be unsettling, but it often creates opportunities. Sainsbury’s and Intermediate Capital Group have both suffered setbacks, but their underlying businesses remain strong. With £2,000 to invest, an investor might consider splitting it between these two companies.
