The FTSE 100 has lagged stock markets elsewhere around the world. For example, US markets have pushed to all-time highs this year. In the UK, we haven’t seen such a move as of yet. This makes me think there are several British stocks that are undervalued at the moment. With that in mind, here are some of the top British stocks I’d look to buy.
Where is the value at the moment?
It’s easier to use top-down analysis to find where the top British socks are at the moment, in my opinion. This means I start at the broad level, and work down to the company level.
For example, I think one area in the UK that could perform strongly going forward is travel and tourism. This is based on the fact that lockdowns are easing and vaccinations are allowing Covid-19 deaths to plummet. For the economy, I think that this allows consumers to increase spending on non-essentials.
From here, I’d look at British stocks that fit the bill. I like Whitbread, owner of Premier Inn. I think demand could be strong for bookings this summer as people look to take trips away from home. It also owns restaurants and pubs that I feel could perform well this year on pent-up demand.
Another example of a top British stock in this sector is International Consolidated Airlines Group. The company owns British Airways, along with other air carriers. I think this stock offers me a hedge in case travel abroad starts to take off. In that case, IAG should be well-placed to capture this traffic, especially via longer-haul flights.
I think both these stocks offer me value at the moment given where the shares are trading versus a historical average.
Spending £1,500 on top British stocks
If I had £1,500 ready to go, I’d split this between half a dozen stocks. Whitbread and IAG would be in there. I’d then look to pick some top British stocks that are more focused around dividend payments.
For example, I recently wrote about Phoenix Group, a large UK insurance company. It currently has a dividend yield in excess of 6%, helped by the large cash generation from operations. If I think that my other stock picks could offer higher risk, then a stock like Phoenix should reduce this within my portfolio.
That’s the benefit of not putting all of my eggs in one basket. I might really be convinced about the growth story behind Whitbread this summer. But if I put all my £1,500 into that one stock, I’m completely reliant on it. By adding an airline like IAG, along with dividend stocks like Phoenix, I can spread my risk without materially denting potential returns.
Overall, I think there are plenty of top British stocks to get excited about at the moment. With the positive story around the economy, I can dive lower to find value at a company-specific level.
