AFIC shares just hit a 3-year low. Time to buy?

AFIC shares are at a devilish new 52-week low today.

| More on:
A man looking at his laptop and thinking.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It's been a horrible time for Australian Foundation Investment Co Ltd (ASX: AFI) shares over the past year or two.

We only have to rewind back to January 2022 to see the Australian Foundation Investment Co, or AFIC for short, at its most recent all-time high. Back then, AFIC shares were exploring levels close to $9 a share. But today, AFIC is trading at just $6.67 a share at the time of writing.

That's after AFIC shares descended as low as $6.66 this morning, which was actually a new 52-week low for the LIC. Superstitions aside about that dubiously-numbered new low, we can't deny that the company has been through the wringer of late.

Today's falls put this listed investment company (LIC) down 10.6% in 2023 to date, and down 7.87% over the past 12 months. The company has also retreated by more than 23% from those all-time highs from early last year. The last time AFIC was trading at the current share price was back in late 2020. So this is close to a new three-year low for AFIC today.

But the prospect of buying one of the ASX's oldest shares at a three-year low might be interesting to some value investors out there. So let's discuss whether AFIC's new lows that we are seeing today represent a compelling buying opportunity.

Are AFIC shares a buy at $6.66?

Well, let's talk about how AFIC works and what its goals are. As a LIC, AFIC manages its own portfolio of assets (mostly ASX blue-chip shares) on behalf of its investors. Because it functions in this way, many investors like to use AFIC as a passive, bottom-drawer investment that can function as a portfolio-within-a-share of sorts.

So if an investor wants to pursue investments of this nature and has confidence in AFIC's long-term track record, any pullback (such as the massive one we've seen over the past year or two) is, by definition, a compelling buying opportunity.

But there's something else to consider as well. Like most LICs, AFIC's share price can trade at a different valuation than what its underlying assets are actually worth. This is called a company's net tangible assets, or NTA.

Earlier this month, AFIC told investors that its NTA per share stood at $6.97 before tax and $5.94 after tax. If we take the before-tax metric (which I consider to be more useful), AFIC is also trading at a discount to its underlying NTA. This increases my view that AFIC shares are undervalued right now, and could be worth a buy for investors seeking a cheap passive investment vehicle.

According to AFIC, its shares have produced a total shareholder return (including dividends and franking credits) of 7.5% per annum over both the five and ten years to 30 September 2023. Its current largest investments include Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP), National Australia Bank Ltd (ASX: NAB) and Wesfarmers Ltd (ASX: WES).

At present, AFIC shares offer a fully-franked dividend yield of 3.74%.

Motley Fool contributor Sebastian Bowen has positions in National Australia Bank and Wesfarmers. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Wesfarmers. The Motley Fool Australia has positions in and has recommended Wesfarmers. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on 52-Week Lows

A businesswoman ponders why her boat is sinking in the ocean.
52-Week Lows

Lake Resources share price falls 7% to new 52-week low amid second strike AGM vote

Chair Stu Crow described "a year of significant progress" amid an 80% decline in the share price in 2023.

Read more »

A man sits uncomfortably at his laptop computer in an outdoor location at a table with trees in the background as he clutches the back of his neck with a wincing look on his face.
Materials Shares

Why did the Core Lithium share price just hit a 2-year low?

Top broker Goldman Sachs says falling lithium commodity prices may hit Core Lithium particularly hard.

Read more »

a mine worker holds his phone in one hand and a tablet in the other as he stands in front of heavy machinery at a mine site.
Resources Shares

Why has the South32 share price tanked 4% to a 2-year low today?

It's been a bad day to own South32 shares...

Read more »

A guys points his fingers down.
52-Week Lows

Down 24% in a month: Is this director buying the dip on IGO shares?

The IGO share price hit a new 52-week low of $9.19 today.

Read more »

Red arrow going down and symbolising a falling share price.
Materials Shares

Why has the Allkem share price just hit a new 52-week low?

Allkem shares are going the opposite way to the stock market today.

Read more »

A young woman with long brown hair opens her green eyes widely expressing surprise.
52-Week Lows

Guess which ASX All Ords share is crashing 34% to a 52-week low

This biopharmaceutical company's shares are being hammered on Wednesday. But why?

Read more »

A young man goes over his finances and investment portfolio at home.
52-Week Lows

Guess which ASX 200 stock just crashed below 2016 prices?

These shares just hit an ALL-TIME low. Could it be time to pick up the bargain of the century?

Read more »

A businesswoman ponders why her boat is sinking in the ocean.
Materials Shares

Lake Resources share price drops 6% as investors digest latest news on Kachi

The Lake Resources share price fell back to January 2021 levels today.

Read more »