4 Seriously Good Value Stocks: Royal Dutch Shell Plc, Bellway plc, Standard Life Plc & Spirent Communications Plc

These 4 stocks have considerable upward rerating potential: Royal Dutch Shell Plc (LON: RDSB), Bellway plc (LON: BWY), Standard Life Plc (LON: SL) and Spirent Communications Plc (LON: SPT)

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While there are many different styles of investing, value investing appears to be the most appealing for private individuals. Just look at the success of Warren Buffett, who has built a fortune on the back of buying what he believes are good value stocks and holding them for many years.

Clearly, Warren Buffett may be rather unique in terms of his ability to spot a worthwhile investment opportunity. But, the techniques he is said to use can be applied by almost anyone to generate a tidy long term return from their portfolio.

For example, the house building sector continues to appear to be undervalued. Although they are having little trouble in finding plots on which to build and are selling houses relatively easily, the house building sector continues to trade on a rather lowly valuation, given its outlook.

For instance, Bellway (LSE: BWY) currently has a price to earnings (P/E) ratio of just 11.6 despite it being forecast to increase its bottom line by 41% in the current year, and by a further 14% next year. This indicates that an upward rerating is very much on the cards and, while interest rate rises may be just around the corner (which may soften demand for housing), the pace of their rise is unlikely to be anything but pedestrian. Therefore, Bellway’s profitability is likely to be impressive over the medium to long term.

Similarly, Standard Life (LSE: SL) also trades at a very enticing price. It is expected to increase its earnings by as much as 54% in the current year, which is almost ten times the forecast growth rate of the wider market.

Despite this, Standard Life trades on a P/E ratio of only 17.1, which puts it on a price to earnings growth (PEG) ratio of only 0.3. As such, an upward rerating seems likely, while a dividend yield of 4.4% should provide support to the company’s share price if the outlook for the global economy does worsen. Furthermore, with dividends having increased in each of the last five years, Standard Life appears to be a very reliable income payer (as well as yielder), too.

Of course, value investors must also look beyond the near term. In the case of Shell (LSE: RDSB), its bottom line is expected to fall by as much as 32% in the current year as a low oil price hurts its top line and margins. Clearly, the current situation regarding sub-$50 oil could continue over the medium term and, as such, the finances of oil companies such as Shell could be vitally important for investor confidence.

On this front, Shell is among the most impressive in the global oil sector. It has excellent free cash flow and a modestly leveraged balance sheet which could accommodate more debt for further M&A activity. And, with it having a P/E ratio of just 12.4, Shell appears to be a bargain at the present time.

Similarly, telecommunications testing company, Spirent (LSE: SPT), is due to post a fall in its earnings this year. In fact, its bottom line is expected to fall for just the second time in six years, with a drop of 17% being forecast by the market.

While disappointing, investors in Spirent appear to have priced in this fall following the company’s profit warning last month and the company’s shares are now down by 8% in the last four weeks. This, then, presents an opportunity to buy at a relatively low price ahead of next year when Spirent is due to record a rise in earnings of 37%. This puts it on a PEG ratio of just 0.5, which indicates that its value is much higher than its current share price suggests.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of Bellway, Royal Dutch Shell, and Standard Life. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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