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2 stocks ready to bounce back

A beach at sunset where there is an inscription on the sand "Breathe Deeeply".
Image source: Getty Images

When buying stocks for my portfolio, I pay special attention to beaten-down, out-of-favour companies. Although with this strategy I might sometimes buy legitimate lemons, I can also occasionally find bargains.

With that in mind, I believe the following two stocks have reached oversold territory. I would buy both of them if I had spare cash, as I think the odds are in favour of a recovery.

Land ahoy!

British Land (LSE:LAND) is a diversified real estate investment trust (REIT) holding a range of properties, including retail, offices, residential, and campus-style developments.

The share price has dropped by 17% over the past 12 months. That is partly due to interest rate rises weighing on real estate values.

Furthermore, retail is a significant part of British Land’s portfolio, constituting roughly 30% by value. The Organisation for Economic Co-operation and Development reported in October 2022 that consumer confidence in the UK is lower than in most developed economies. Penny-pinching shoppers will impact retailers, having a knock-on impact to the rents that British Land can expect to charge.

Despite the dark clouds, I think British Land’s share price presents a good entry point for me. In its half-year report released on 16 November, British Land’s net tangible asset value was 695p a share. With the REIT’s shares trading at 409p a share, that’s a 41.1% discount to net asset value – a significant margin of safety.

In short, British Land’s correction looks overdone at these levels. The REIT offers a high dividend yield of 5.7%, and a management team that targets value accretive acquisitions (creating development opportunities instead of just sitting idly on its properties).

Home, sweet home

I would buy Persimmon (LSE:PSN) stock at its current price. Despite a 41% fall in the last 12 months, I believe this UK housebuilder is a long-term winner.

Yes, housebuilding is a boom-and-bust business, and the sector is in the doldrums right now. Persimmon recently advised that the outlook for 2023 was so uncertain that it was unable to provide a profit forecast for the year. It also slashed its dividend by a whopping 75%.

Additionally, while previous industry slowdowns have seen government intervention, there’s currently no such support. Instead, the government has actually introduced a new 4% tax on housebuilder profits to remedy unsafe cladding. And a recent probe by the UK’s Competition and Markets Authority (CMA) is adding uncertainty.

But I believe all of this bad news has been priced in, and I see an opportunity to buy now and wait for brighter times to come.

Ultimately, the UK needs more homes and Persimmon is well-placed to deliver them. As the largest housebuilder in the country, it has a strong balance sheet, with net cash of £850.7m at the end of 2022. I think if I can weather the short-term challenges I should be well-rewarded in the long run.

Darkest before the dawn

Although volatility can make looking at my brokerage account a stressful experience, I believe it is my friend as an investor. When the stock prices of high-quality companies halve in the space of a year, that can sometimes signal an opportunity to buy assets below their true value. That’s why I’m always on the look out for depressed stocks that could be due a bounce back!

The post 2 stocks ready to bounce back appeared first on The Motley Fool UK.

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Mark Tovey has no position in any of the shares mentioned. The Motley Fool UK has recommended Land Securities Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2023