2 UK Stocks that Look Cheap

These two UK companies are being undervalued by the market, according to Morningstar equity research

Holly Cook 17 November, 2014 | 8:00AM
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Holly Cook: Morningstar analysts seek to identify quality companies by looking for those that have a sustainable competitive advantage, or what we call an economic moat. They then use a discounted cash flow model to value that company's shares. Looking at the current market value and comparing that to our analyst’s fair value estimate, we come up with a Star Rating. So, those stocks that are trading way above what our analyst thinks it’s worth will get a low Star Rating, one Star being the lowest, and those that are trading way below what we think it’s worth will get a high Star Rating with five stars being the highest.

Looking at our UK coverage list, we've identified two UK companies that right now are looking rather cheap by our estimates.

The first is Tullow Oil (TLW). This independent oil and gas exploration and production company is valued by Morningstar at 1,200 pence or £12, but it's currently trading at less than half that value.

The second is Kingfisher (KGF). Best known in the UK as the company behind B&Q, it also operates similar home DIY retailers in Europe and the shares are currently trading a long way off of 430 pence fair value estimate. 

Other companies currently boasting a 4-Star rating include Barclays (BARC), Rolls-Royce (RR.) and Petrofac (PFC).

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Barclays PLC202.20 GBX2.80Rating
Kingfisher PLC320.10 GBX0.88Rating
Petrofac Ltd134.60 GBX4.42
Rolls-Royce Holdings PLC118.82 GBX2.57Rating
Tullow Oil PLC57.00 GBX0.28

About Author

Holly Cook

Holly Cook  is Manager, Morningstar EMEA Websites