The S&P/ASX 200 Index (INDICES: ^XJO) has fallen 7% over the last month on the back of under-performance by stalwarts Australia and New Zealand Banking Group Limited (ASX: ANZ), BHP Billiton Limited (ASX: BHP) and Woolworths Limited (ASX: WOW).
With these blue chips trading at or near 52-week lows, right now could be the perfect time to pick up three great stocks for a long-term investment.
Australia and New Zealand Banking Group
ANZ is the laggard of the big four banks, having under performed the other three over the last month. Its shares have been in decline following an announcement in October by outgoing chief executive Mike Smith who indicated industry wide headwinds. Sentiment towards the banking industry suffered as a result, with investors fearing rising bad debts, regulatory constraints and intense competition would limit growth.
Whilst all these concerns are valid, the (circa) 10% drop in share price since late October seems to factor in the worst possible scenario. Although global growth will remain anemic for the foreseeable future, ANZ's ability to generate strong returns on earnings and a trailing dividend yield of 6.9% (fully franked) should compensate patient investors in the interim. This means that even though investors may not see the same capital growth as years passed, at current prices, the bank appears fairly priced for a low-growth environment. I believe this makes it a good addition to any portfolio.
BHP Billiton Limited
In case you've missed it, BHP's share price has been under pressure over the last week after the collapse of its two tailings dam at its Samarco mine in Brazil.
Samarco is a joint venture between BHP and Vale which produces high grade iron ore. It accounts for 20% of the world's supply of iron ore pellets and the disaster is likely to remove 25 million to 30 million tonnes of supply from the market. Based on early reports, remediation of the mine could take up to three years, with BHP facing potential fines for its part in the natural disaster. This has placed uncertainty on BHP's future, causing a $15 billion loss in value last week.
The fact is that BHP's fines and penalties are unlikely to be anywhere near that amount. Samarco ordinarily accounts for 3% of BHP's underlying earnings (EBIT). Analysts at Deutsche Bank believe Samarco would have added $308 million to EBIT this year, meaning even if the mine stays closed for three years, the sell-off appears overdone.
The key risk from here is whether BHP can maintain its dividend, given dwindling commodity prices and now, loss of production. However, as the stock has fallen so much, I believe the worst is priced in, making it a buy today.
Woolworths
Woolworths' shares are in all sorts following its quarterly sales results last month. Woolworths reported sales shrunk by 2.5% compared to the same quarter last year, despite concerted efforts to cut costs and alter consumer perceptions of it being more expensive than Coles owned by Wesfarmers Ltd (ASX: WES).
By comparison, Coles grew food and liquor sales by 4.7%, indicating a further loss of market share by Woolworths. This under performance has placed pressure on Woolworths' share price, with many analysts conceding that Woolworths' best days are behind it. I beg to differ.
With Woolworths currently searching for a new CEO, and rumours surfacing that private equity firm KKR might be running the ruler over Big W, it's likely that new management will bring wide-reaching changes.
Accordingly, Woolworths is in a turnaround phase meaning it might take more hits before it recovers. However, with shares worth almost 20% less than a month ago, I am confident the bottom is nigh, providing the ideal opportunity to purchase a quality company for the long term.
Foolish takeaway
Whether you're a first time investor or a seasoned veteran, wise investing is about buying top-quality stocks at the right price.
Whilst it is unknown how low ANZ, BHP and Woolworths could go on sentiment, these bellwethers deserve a place in any portfolio. At current prices, their downside risks appear priced in, making for great long-term investments when (not if) their fortunes turn.
