FTSE 100’s slump serves up buying opportunity for these 2 stocks

2 mins. to read
FTSE 100’s slump serves up buying opportunity for these 2 stocks
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The FTSE 100 index’s 7% decline over the past six months has prompted unease among many investors. After all, the global economy’s prospects have materially worsened over recent months as high inflation, rising interest rates and geopolitical risks have mounted.

However, such times present buying opportunities for long-term investors. Sound businesses with long-term growth potential trade at lower share prices that mean they offer better value for money than would normally be the case.

While these two FTSE 100 stocks could fall further in the short run if the world economy’s performance deteriorates, they have long-term recovery potential following their recent share price declines.

Anglo American

Mining company Anglo American’s (LON: AAL) share price has slumped by around 30% in the past six months. Investors have priced in a more challenging outlook for the world economy, with the IMF expecting a near-50% decline in the rate of global GDP growth in the current year. Since this could lead to a moderation in demand for a wide range of commodities, it is perhaps unsurprising that the mining sector has been under pressure of late.

Encouragingly, Anglo American has a sound financial position through which to overcome potential economic difficulties. For example, it has a net debt-to-equity ratio of just 12%. This shows that rising interest rates are unlikely to present major financial difficulties for the firm.

Over the long run, the company’s positioning in future-facing commodities could act as a significant catalyst on its financial performance. Demand for commodities such as copper and iron ore is likely to rise significantly over the coming years due to their prevalence in renewable energy infrastructure and electric vehicles. And with supply potentially limited, the prices of such commodities could move higher.

Following its share price fall over recent months, Anglo American now trades on a forward price-to-earnings ratio of just five. This suggests it offers good value for money given its long-term growth potential and sound financial standing.

InterContinental Hotels

InterContinental Hotels (LON: IHG) has also experienced a share price decline over recent months. It has lagged the FTSE 100 by 7% in the past six months as investors have priced in lower demand for travel and leisure activities due to an uncertain economic outlook.

The firm’s latest results showed it is making encouraging progress in strengthening its market position. For example, it is investing heavily in areas such as its loyalty programme and in digital services to improve its competitive advantage over peers. Meanwhile, it is rapidly expanding the size of its global estate. It now stands at 883,000 rooms, with a further 278,000 rooms in its pipeline.

Despite heavy investment, IHG reduced net debt by 30% year-on-year to improve its financial stability during a turbulent period for the world economy. And with revenue up by 53% and operating profit rising by 91% on an underlying basis during the first half of the year, the company’s growth potential amid favourable operating conditions is clear.

Undoubtedly, IHG’s share price continues to trade at a premium to the wider market in spite of its recent fall. However, its forward price-to-earnings ratio of around 19 is a price worth paying given its diverse geographic spread, solid financial position and long-term growth potential.

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