3 Undervalued UK Stocks

THE VALUE INVESTOR: The FTSE 100 level has doubled since the 2009 market trough, but Morningstar analysts can still spot some undervalued UK opportunities

Holly Cook 28 April, 2015 | 10:52AM
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Holly Cook: The FTSE 100 is now essentially double where it was in the trough in much 2009 after the financial crisis. So, it is becoming increasingly difficult to find undervalued investment opportunities, but there are a few pockets and I have got three to very quickly highlight for you.

So, Kingfisher (KGF) would be the first. Most people will know that as the owner of B&Q stores. We think it's an interesting opportunity for medium-term investors. Management are building on some of its competitive advantages and it's actually the cost leader in its industry in Europe. We also think that it's superior to its main competitor here in the U.K. which would be Home Retail Group.

The second undervalued opportunity that you might want to look at is Centrica (CNA) which runs British Gas. It's actually just reported quite weak 2014 results and that depressed its share price which is partly why we think it's undervalued. But while we wait for more details on those results and those forecasts in particular, we do think that management seems to be rethinking its hedging strategy which could be a positive for the company.

Also, underpinning its economic moat is its stake in nuclear energy storage which is something that's a very competitive industry to get into and that will help to maintain that sustainable competitive advantage.

Last but not least would be Lloyds (LLOY). We are looking for a double-digit return on equity in 2015 and also its dividend yield for 2016 onwards should be at least 4%. So, it's not just undervalued right now, but it also would be interesting for income seekers potentially. The company has completed a really significant turnaround and the U.K. economy is continuing to grow steadily. So, that's helping to underpin the financial services sector. But it is important to note that as we all know from the headlines after the last five years or so, scandals can happen at any moment like PPI. So, you do need to keep that in mind when investing in the banks.

For more information on all three of these stocks and more, look up their stock report on Morningstar.co.uk.

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
Centrica PLC131.70 GBX0.73Rating
Kingfisher PLC245.60 GBX-1.05Rating
Lloyds Banking Group PLC50.92 GBX-0.16Rating

About Author

Holly Cook

Holly Cook  is Manager, Morningstar EMEA Websites

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