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 man holds his head in his hands, despairing at the bad result he's reading on his computer.
Materials Shares

Core Lithium share price hits a multi-year low: Will the tide change soon?

Are analysts now seeing value emerge from the lithium miner's shares?

Read more »

Red arrow going down on a stock market table which symbolises a falling share price.
52-Week Lows

2 ASX shares to buy that are at 52-week lows

Goldman Sachs thinks these beaten down shares are buys.

Read more »

A group of six young people doing the limbo on a beach, indicating oversold shares that can not go any lower.
52-Week Lows

Core Lithium share price dives another 12%. How low can it go?

Core Lithium has been playing a game of limbo with investors in 2024...

Read more »

Man on a laptop thinking.
52-Week Lows

2 ASX shares to buy that are near 52-week lows

Analysts think these beaten-down shares could be top buys.

Read more »

A man sitting at a computer is blown away by what he's seeing on the screen, hair and tie whooshing back as he screams argh in panic.
52-Week Lows

3 ASX 300 shares hitting new 52-week lows: Are they cheap buys?

What's sending these shares down to new lows today?

Read more »

A man slumps crankily over his morning coffee as it pours with rain outside.
Materials Shares

Why did this ASX All Ords stock just crash 24%?

What is weighing down this lithium stock today? Let's find out.

Read more »

A businesswoman gets angry, shaking her fist at her computer.
52-Week Lows

3 ASX shares at 52-week lows or worse

Times have been hard for owners of these shares.

Read more »

Blue chips with stock written on them.
52-Week Lows

These 3 ASX blue-chip shares just hit multi-year lows. Am I buying?

Here's what I'd do with these battered blue-chip shares...

Read more »