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I think this may be an unmissable chance to buy an oversold UK share before it rallies hard

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Image source: Getty Images

I’ve had a lot of fun investing over the last year, buying one beaten-down UK share after another and watching them fly back into favour as the FTSE 100 rallies like crazy.

Blue chips Lloyds Banking Group, Smurfit Kappa Group, Scottish Mortgage Investment Trust, and Taylor Wimpey have all flown since I bought them. So have smaller firms Just Group, Costain Group, and Warpaint London.

Not all my stock picks are shooting the lights out. FTSE 100 giants Diageo and Unilever have struggled to recover, but that’s okay. I don’t buy oversold companies expecting them to turn into red-hot growth heroes overnight. Which is a good thing, because my latest purchase could take time to recover: luxury group Burberry Group (LSE: BRBY).

FTSE 100 fashion loser

I cast my eye over the stock ahead of its full-year results on 15 May, and decided it was exactly the type of stock I should buy.

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While the FTSE 100 was hitting new highs, Burberry’s shares had crashed by half. It’s down 53.63% over 12 months.

The rot started last November when Burberry shocked markets by issuing a profit warning. Bargain seekers who dived in then quickly came unstuck, as the board issued more downbeat guidance in January.

That’s when I got interested. I’ve learned not to buy after one profit warning, because another often follows. So I kept a watching brief to see the market reaction to last Wednesday’s results, and it wasn’t good.

The Burberry share price dipped 2.75% in early trading, as investors absorbed news of a 40% plunge in full-year 2023 earnings. While I watched – too closely as it turned out – the stock recovered slightly, so I dived in.

It’s an iron rule in my life that shares always drop right after I buy them. That’s partly due to stamp duty and trading charges, but mostly, sod’s law. It’s happened with my last gazillion stock purchases. It certainly happened with Burberry, which plunged the second I hit the ‘buy’ button.

Ripe for a recovery

I’m down more than 10% as Burberry makes my self-invested personal pension (SIPP) look messy, a rare splash of red in a sea of positive numbers.

It’s only been a week, so I shouldn’t complain. Turning a struggling company around can take years. Burberry has challenges, as its fabled ‘Nova’ check design treads a fine line between classy and trashy. The cost-of-living crisis isn’t over yet, and Burberry hasn’t quite cracked the super-rich, who can ignore minor inconveniences like a global recession. Heaven knows what will happen to Chinese demand, given that country’s flailing economy and looming trade wars.

Yet Burberry has been doing its thing successfully since 1856 and still posted almost £3bn of revenues last year, despite the luxury slowdown. It looks decent value at 14.34 times earnings while on a bumper trailing yield of 5.84%.

I’d wish I’d waited a little longer to buy it, but that’s life. Now I’m planning to turn the recent dip to my advantage, and average down on the stock. At today’s levels, it looks like an unmissable bargain. I reckon that at some point Burberry could potentially rally hard. I don’t know when, but I plan to be holding it when it does.

The post I think this may be an unmissable chance to buy an oversold UK share before it rallies hard appeared first on The Motley Fool UK.

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Harvey Jones has positions in Burberry Group Plc, Costain Group Plc, Diageo Plc, Just Group Plc, Lloyds Banking Group Plc, Scottish Mortgage Investment Trust Plc, Smurfit Kappa Group Plc, Taylor Wimpey Plc, Unilever Plc, and Warpaint London Plc. The Motley Fool UK has recommended Burberry Group Plc, Diageo Plc, Lloyds Banking Group Plc, Unilever Plc, and Warpaint London 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 2024