Amongst those stocks that Morningstar analysts really like at the moment because they’re undervalued is BHP Billiton (BLT), a global mining conglomerate that has seen its share price suffer recently, mainly because of a recent accident at its Brazil operations. But also of course because it’s tied very closely to commodity prices, and iron ore prices in particular have been weak; it’s also of course tied to global demand and there are on-going concerns around the Chinese economy. However, our analysts believe that this company can ride out those fluctuations because it’s got this hugely diversified portfolio of operations around the globe.
Another undervalued stock right now that our analysts are looking at is Kingfisher (KGF), which operates DIY stores such as B&Q. That’s been underperforming so far this year and so the stock is also slightly undervalued. But analysts believe it can stave off some of that online competition that other retailers might struggle with, because if you think about when you’re buying something like a new kitchen you want to see it in the flesh, and also delivery is likely to cost a lot so you’re more likely to want to pick it up yourself or even have a builder collect it. So, it doesn’t have that same kind of online competition concerns that other areas of retail may do. On the upside, lower stamp duty in the UK and also capital gains tax relief in France—two of its major markets—should help to boost the housing markets in both those countries, as well as help drive demand for home improvements.
A third stock that is just slightly undervalued at the moment is Diageo (DGE), which is a brewer, a beverages company. It’s been underperforming for three years now, so of course sentiment surrounding the stock is pretty low, but its competitive advantages should mean that it can provide a sustained excess return on capital, and this would be driven by a turnaround in volumes, hopefully.
