Best Value Stocks UK for 2024
This article explains what value investing in UK stocks means, how investors try to identify them, the pros and cons of investing in them and a few of the best value stocks UK to watch this year.
Table of Contents
What are Value Stocks UK?
Typically, there are two main categories the stock of any given company might fall under: growth or value. Growth stocks are those that belong to businesses that are expected to grow rapidly and expand aggressively in the coming years.
In general, these stocks come with a slight premium, as the future earnings potential of the company is highly valued. A good example of a growth stock is Tesla, which is a business that investors expect will keep growing quickly in the coming years. As such, Tesla is also valued at a relatively high Price to Earnings (P/E) ratio of ~53, whereas the average business has a P/E of around 25.
So what is a value stock? Value stocks typically have most of their rapid growth behind them. These are mature businesses that grow slowly but steadily and post consistent and stable earnings. When the share price of a value company takes a slight dip and becomes undervalued, value investors might take the opportunity to invest in these shares.
Value investing is less flashy than growth investing. It focuses on scooping up large, proven businesses at an objectively good price. These businesses are unlikely to post double-digit growth numbers, but owning these shares could potentially provide growth over the long term. Some value stocks also give investors the opportunity to earn dividends which are paid out from company profits.
Best Value Stocks to Watch
In any form of investing, no one can no what the ‘best’ truly is. After all, no one can forecast things that happen in the future that can affect a share price. However, with proper research and risk management investors can build a diversified investment portfolio.
Here is a list of the best value stocks to watch:
- Anglo-American - Worldwide Mining Operator and Leading Producer of Platinum
- Barclays – Retail Focused Banking Giant with Diversified Income
- RELX - Prominent Player of Data and Risk Analytics in Science, Technology, and Medicine
- Tesco - UK Grocery Giant With Operations in Europe and Asia
- Rolls-Royce - Leading Producer of Luxury Vehicles and Aviation Engines
Let's look at each of these stocks in more detail.
Anglo-American - Worldwide Mining Operator and Leading Producer of Platinum
Anglo-American is a UK mining company with operations in Asia, Africa, Europe, and the Americas. Their importance in the mining sector cannot be understated, as they provide for 40% of the world’s platinum output. The company also produces diamonds, copper, nickel, and iron ore among others.
The mining company paid a relatively high dividend of 6.4% in 2022. This means that an investor who simply owns the stock will be paid out 6.4% of the value of their position in instalments over the year. The dividend yield for 2023 is estimated to be 4.8% but this changes daily as it is linked to the company’s share price.
The company’s P/E ratio climbed to a peak of 12 in January 2023. Since then, it has steadily declined back to around 8, which is where it’s historically been for the past few years highlighting the potential for it to be undervalued.
However, it is important to note that due to the nature of their business, mining companies are starting to face some challenges from investors who are more focused on ESG (Environmental, Social, Governance) investing.
ESG is a relatively new movement within the investing world that weighs these sustainability and ethical factors highly. As mining causes a lot of pollution, this might make some wary of investing in Anglo-American as a value stock.
Barclays – Retail Focussed Banking Giant with Diversified Income
Headquartered in London, Barclays is a multinational British bank that provides a host of financial services like loans, wealth planning, corporate banking, and portfolio management in both the UK and overseas. The company is active in more than 40 countries and employs 80,000 people.
Barclays’ share price hovered around GBX 300 in the period from 2009 to 2015. Since then, it has experienced two major dips, dropping to GBX 150 in 2016 and GBX 115 at the start of the COVID-19 pandemic. The stock recovered from these dips and now ranges between GBX 150 and GBX 200.
While some investors might see this declining share price as a bad sign, those who are bullish on Barclays’ future might deem it an opportunity to add Barclays to their portfolio. The company’s P/E ratio is currently sitting at ~5, which is much lower than US competitors JP Morgan, and Morgan Stanley, who have P/E ratios around 10 and 12 respectively highlighting the potential for it to be undervalued.
Barclays paid a 4,25% dividend in 2022. This is roughly in line with the average growth of the FTSE. What’s noteworthy, however, is that analysts are forecasting Barclays’ dividend yield to rise to 6,1% in 2023, and 6,9% in 2024 but these are some very bullish estimates to be treated with caution.
It is important to note that the banking sector is in a mild state of crisis with two major US banks collapsing in early 2023. While there hasn’t yet been any contagion in other banks it does highlight the risks involved in investing in this sector. However, there could be some interesting value stocks in the banking sector due to this crisis.
RELX - Prominent Player of Data and Risk Analytics in Science, Technology, and Medicine
RELX develops and provides analytics and decision tools to other businesses in the fields of science, technology, risk management, medicine, and law. An example of this is Accuity, which provides financial crime compliance software to help institutions detect fraud and money laundering. RELX claims to have prevented $60 million in benefit fraud in the state of Florida.
Even though it is usually considered to be a value stock, RELX as a company is steadily growing. In the last five years, RELX has grown its Earnings Per Share (EPS) by 5,5% a year. The share price grew by 11% a year in the same timeframe. Pouring over £400 million into new products and infrastructure in 2022, the company is investing heavily in its future.
RELX pays a relatively lower dividend yield than other companies on this list. Since 2015, their dividend yield has hovered between 2-2,5%. While some value investors may consider this low, it is important to consider why a company pays out a dividend in the first place – to provide a share in the profit of the company.
In theory, the company could pay out more dividends, but RELX chooses instead to invest a lot of its revenue back into growing the business itself which is a sign for investors that the company is aiming at growing its share price further in the coming years.
A growing movement of support for open access is a potential risk factor for the company. Much of the company’s revenue comes from publishing articles and information within the scientific, technological, and medical fields. Open-access article submissions are currently roughly 10% of the overall article count and doubled in 2022. Should this trend continue, RELX might need to pivot one of the core aspects of its business to continue generating revenue.
Tesco - UK Grocery Giant With Operations in Europe and Asia
Tesco hardly needs an introduction to anyone who has lived in the UK. A leading grocery and general merchandise retailer, Tesco was the third-largest retailer worldwide by gross revenue in 2011. In the UK the company has a market share of roughly 28%. Tesco also operates in countries like Hungary, the Czech Republic, and Slovakia.
What makes Tesco an interesting UK value stock is that its 4,8% dividend yield grew by 20% in 2021, and another 20% in 2022. In 2022, the company’s earnings still covered the dividend twice over, meaning that there is more room to grow in the future, should the company’s business operations remain stable.
Moreover, Tesco is aggressively buying back shares on the open market. It has announced a program to buy back shares with a total market value of £750 million by April 2024. Share buybacks mean the company can pay a higher dividend yield using the same amount of cash, as there are fewer shares to go around. Though share buybacks are a signal that a company is financially healthy to a value investor, some investors believe they can stifle the company’s future growth as it has less money to invest in business operations.
Competition is becoming increasingly stiff in the grocery and retail industries, with players like Aldi and Lidl heavily competing on prices and margins. Some investors are thus wary when it comes to Tesco’s future. The question is if they will be able to remain at the top of the pack.
Rolls-Royce - Leading Producer of Luxury Vehicles and Aviation Engines
The last company on this list of UK value stocks to watch is another name that is familiar to most consumers and investors alike. Rolls-Royce is a UK-based producer of luxury automobiles, but that’s not all. The company also produces engines for the civil and defence aerospace industry, which accounts for roughly half of its revenue.
The Rolls-Royce share price has shot up a staggering 53% in the first half of 2023, which has garnered a lot of attention from investors both in and outside the UK. Rolls-Royce is one of the leading engine makers in both the military transport and military aviation markets globally. With many countries increasing their defence spending in reaction to conflicts and wars around the world, investors are speculating that the demand for Rolls-Royce's products could increase.
In terms of dividends, Rolls-Royce stopped paying out profits to investors at the end of 2019. This was naturally a very turbulent time for a company heavily active in the aviation industry, as travel restrictions due to the COVID-19 pandemic kept aeroplanes on the ground. The company has not reinstated a dividend payout yet, but some analysts believe the company will resume paying dividends in 2024 with a forecast of 1.1%.
However, one important consideration is that the company has a rather large £3.3 billion in net debt. While this is less than the £5.2 billion figure the company posted at the end of 2021, it remains a liability. Rolls-Royce’s Debt To Equity (D/E) ratio is slightly negative at -0,679. The last time it had a positive D/E ratio was in the first half of 2018. The question for investors will be if Rolls-Royce can bring its balance sheet back in line.
How to Invest in Value Stocks
With Admirals, you can invest in the best value stocks from the UK, US and Europe with the following commissions:
- UK stocks – 0.1% of trade value, 1 GBP minimum commission.
- US stocks - From $0.02 per share, 1 USD minimum commission.
You can learn more about investing commissions on the Admirals Contract Specification page.
You can search for global stocks from the Invest.MT5 web platform and invest in four steps:
- Open an account with Admirals.
- Click on Trade on one of your live or demo investing accounts to open the web platform.
- Search for your stock at the bottom of the Market Watch window and drag the symbol onto the chart to view its live price.
- Use the one-click trading feature, or right-click and open a trading ticket to input your trade size, stop loss and take profit level.
Why Invest in Value Stocks
One of the most important questions any investor will face is how much risk they’re willing to take on. A good rule of thumb is that the higher the (potential) returns of an investment endeavour, the higher the risk the investor will be taking on.
The prime reason to invest in value stocks rather than growth stocks is to maintain a slightly more defensive portfolio and take on less risk. This is because value stocks are usually larger, more stable businesses that might not post double-digit growth numbers every quarter but are also in some ways proven businesses that can generally be expected to do well.
Having said this, there are some value stocks that have faced accounting scandals or a black-swan event that have sent share prices crashing lower. As always, investing is a personal decision that depends on the investor’s financial situation, their own goals and tolerance to risk and uncertainty.
Making informed decisions according to these wants and needs is paramount. Investors who feel like they require more experience and knowledge before being able to do so can consider practising with a demo account. This allows the investor to practice in a virtual environment until they are ready to do it with real money.
Conclusion
This article has hopefully provided a succinct explanation of what investing in UK value stocks entails, why an investor might want to do it, and which of the best value stocks to keep in mind. Finding a good value stock might prove difficult, as it often requires the investor to find some clue in a company’s financial statements that the market hasn’t generally caught up to.
However, investing in companies with a reliable dividend yield or that perform regular share buybacks can be an interesting way to identify undervalued stocks UK that are worthwhile keeping an eye on.
FAQs on Value Stocks
What are value stocks in the UK?
Whilst there is no strict definition of what constitutes a value stock, in general, UK value stocks are companies that are well-established, relatively large, grow slowly but steadily, pay a dividend, and are trading at a modest P/E ratio.
What are good examples of value stocks?
A good example of a value stock is a company with a large market capitalisation that trades at a modest P/E ratio compared to the industry average. Other indicators to look out for are the dividend yield, or, for example, the Price to Book (P/B) ratio, which compares the net assets of a company to the price of its shares.
Which value stocks to buy now?
Identifying value stocks to buy now requires some research and also patience. Some of the top value stocks to watch this year include mining giant Anglo-American, investment bank Barclays, data analytics company RELX, grocery giant Tesco and engineering company Rolls-Royce.
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