Undervalued UK Stocks 2023: Top 10 Picks for Investors

Undervalued UK Stocks 2023: Investing in the stock market can be an overwhelming experience, particularly for those who are just starting. Determining which stocks are worth investing in and which ones to steer clear of can be challenging. One approach many investors have adopted is to seek out undervalued stocks, which are essentially stocks trading for less than their true value. In this article, we will delve into some of the most undervalued stocks in the United Kingdom and provide tips on spotting hidden gems in the stock market.

Most Undervalued UK Stocks

Here are some of the most undervalued stocks in the UK that investors can consider:

Standard Chartered

Banking stocks perform well during times of high inflation due to increased interest rates. While Lloyds is a popular choice for UK investors, Standard Chartered is making strides with its goal to achieve a 10% annual return on tangible equity. Though the bank has a history of falling short on promises, recent Q1 results show progress with a decrease in the cost-to-income ratio and a RoTE of 11.1%. It remains to be seen if this success will continue, but the new strategy is yielding positive results.

Imperial Brands

Imperial Brands is a major UK tobacco company that primarily sells cigarettes but is now diversifying its product offerings to include healthier alternatives like heated tobacco and vaping devices. Despite being undervalued due to its controversial products, the company offers a significant dividend to shareholders.

Centrica

Centrica is a leading energy and utilities service provider in the UK that offers plumbing, drainage, and heating services through its subsidiaries. Despite double-digit growth, investors have yet to be eager to jump on board, resulting in shares trading at a relatively low valuation. The recent jump in profitability may be short-term, but for now, the stock is trading below analyst forecasts.

easyJet

The Covid-19 pandemic has harmed travel stocks, including easyJet. The company’s net debt is decreasing, and passenger capacity is expected to reach 90% of pre-pandemic levels in Q3 of 2022, with a near-complete recovery by year-end. Despite increased debt, easyJet’s fuel costs are largely hedged, and the company may be undervalued.

Redrow

Homebuilders are struggling to source materials due to pandemic-related supply chain issues, causing a hit to stocks. Redrow is no exception, despite showing superior revenues and a record order book. Rising interest rates are affecting affordability for new homes, but long-term demand for housing remains strong. The current share price is trading around six times earnings, indicating undervaluation.

Aviva Plc (AV)

Aviva is a multinational insurance company that operates in the UK, Europe, and Asia. The company’s stock is undervalued, with a P/E ratio of 4.7 and a dividend yield of 7.5%. Aviva’s stock price has also been trending upward, which indicates that the market is starting to recognize the company’s value.

Royal Dutch Shell Plc (RDSB)

Royal Dutch Shell is a multinational oil and gas company in over 70 countries. The company’s stock is undervalued, with a P/E ratio of 8.6 and a dividend yield of 3.6%. Royal Dutch Shell is also a leader in renewable energy, making it an attractive investment opportunity for investors looking for sustainable investments.

Lloyds Banking Group Plc (LLOY)

Lloyds Banking Group is a UK-based financial institution that provides banking and financial services. The company’s stock is undervalued, with a P/E ratio of 6.5 and a dividend yield of 3.5%. Lloyds Banking Group has also been implementing digital transformation initiatives to improve customer experience and streamline operations, which can lead to long-term growth opportunities.

National Grid Plc (NG)

National Grid is a UK-based utility company that operates electricity and gas transmission networks. The company’s stock is undervalued, with a P/E ratio of 13.2 and a dividend yield of 5.7%. National Grid also invests in renewable energy projects, which can lead to future growth opportunities.

Tesco Plc (TSCO)

Tesco is a UK-based multinational retailer that operates supermarkets and convenience stores. The company’s stock is undervalued, with a P/E ratio of 10.8 and a dividend yield of 4.2%. Tesco is also expanding its online presence and investing in digital capabilities, which can lead to long-term growth opportunities.

What are Undervalued Stocks?

Undervalued stocks are stocks that are trading below their intrinsic value. Intrinsic value is the actual value of a company, which is determined by its assets, earnings, and future growth potential. When a stock is undervalued, it means that it is trading below its intrinsic value, making it an attractive investment opportunity.

How to find Undervalued stocks

There are several ways to identify undervalued stocks. Here are some methods that investors can use:

Price-to-Earnings (P/E) Ratio

The P/E ratio is a metric that investors use to evaluate a company’s stock price relative to its earnings. The ratio is calculated by dividing the stock price by the earnings per share (EPS). A low P/E ratio indicates that a stock is undervalued, while a high P/E ratio indicates that a stock is overvalued.

Price-to-Book (P/B) Ratio

The P/B ratio is a metric that investors use to evaluate a company’s stock price relative to its book value. The ratio is calculated by dividing the stock price by the book value per share. A low P/B ratio indicates that a stock is undervalued, while a high P/B ratio indicates that a stock is overvalued.

Dividend Yield

Investors use the dividend yield metric to evaluate a company’s dividend payout relative to its stock price. The yield is calculated by dividing the annual dividend per share by the stock price. A high dividend yield indicates that a stock is undervalued, while a low dividend yield indicates that a stock is overvalued.

Price-to-Sales (P/S) Ratio

The P/S ratio is a metric that investors use to evaluate a company’s stock price relative to its sales. The ratio is calculated by dividing the stock price by the sales per share. A low P/S ratio indicates that a stock is undervalued, while a high P/S ratio indicates that a stock is overvalued.

Conclusion

Investing in undervalued stocks can be a profitable strategy for investors willing to do their research and identify hidden gems in the stock market. By using metrics such as the P/E ratio, P/B ratio, dividend yield, and P/S ratio, investors can identify undervalued stocks with the potential for long-term growth. Some of the most undervalued stocks in the UK include Aviva, Royal Dutch Shell, Lloyds Banking Group, National Grid, and Tesco.

Frequently Asked Questions

What are undervalued stocks?

Undervalued stocks are stocks trading below their intrinsic value, making them an attractive investment opportunity.

How can I identify undervalued stocks?

Investors can use metrics such as the P/E ratio, P/B ratio, dividend yield, and P/S ratio to identify undervalued stocks.

What are some undervalued stocks in the UK?

Some of the most undervalued stocks in the UK include Aviva, Royal Dutch Shell, Lloyds Banking Group, National Grid, and Tesco.

Why are undervalued stocks attractive to investors?

Undervalued stocks have the potential for long-term growth as the market recognizes the company’s value and the stock price increases.

Is investing in undervalued stocks a guaranteed profit?

Investing in undervalued stocks carries risk, and there is no guarantee of profit. Investors should always do their research and assess the risks before investing.