With a flurry of takeover bids for British companies in recent weeks, some professional investors obviously think UK shares are undervalued. I have a list of shares to buy now that I think offer good value at current prices. Here are two of the names on it.
Retail success story: B&M
Shares in retailer B&M (LSE: BME) received a boost this week when the company upgraded its profit forecast. Over the past year, the B&M share price has increased 27%. But I think there could be further potential upside.
Some investors have worried that last year’s sales surge at the company was just down to the pandemic. B&M’s UK stores stayed open during lockdowns. But I think the company’s strong results during lockdowns actually enhanced the investment case. To me, they showcased the retailing expertise of B&M’s management. From spotting items that shoppers love to striking a good deal on pricing, B&M is a high street force to be contended with. That has translated into handsome returns for shareholders. As well as the share price increase, each share paid out 17.3p of ordinary dividends last year. On top of that, the profits bonanza led to 45p of special dividends per share. Dividends are never guaranteed, though. B&M’s highly competitive market remains a risk to profit margins.
I see possible upside here because the company should be able to keep expanding as it adds new sites. That could allow its proven retail formula to be used, and could also bring economies of scale. Both of those things could help increase profits.
Shares to buy now: Lloyds
Another company I would consider adding to my portfolio is banking giant Lloyds (LSE: LLOY). Why do I rate these among shares to buy now?
I see Lloyds as a simple proxy for British banking. Without the investment banking operations of Barclays or the international exposure of rivals such as Standard Chartered and HSBC, Lloyds’s clear focus on UK retail and business banking makes its operations a bit easier to understand. As the leading mortgage lender in the UK, continued buoyancy in the UK housing market should help sustain profits. There is a risk that a housing market downturn causing loan defaults could hurt profits.
The company has restored its dividend. With a progressive dividend policy, I am hoping the payout increases, although as we saw last year a sudden change in market circumstances can lead to dividend suspension.
I don’t see a very exciting growth story at Lloyds, and wonder if its move into owning rental accommodation could turn out to hurt not boost profits down the line. I see shares moving down 9% in the past month as a buying opportunity. They still stand 60% higher than a year ago. Lloyds features among my shares to buy now as I like its sizeable, focussed banking operation. I expect demand for banking services like mortgages to continue for years to come.
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Christopher Ruane owns shares in Lloyds Banking Group and Standard Chartered. The Motley Fool UK has recommended B&M European Value, Barclays, HSBC Holdings, Lloyds Banking Group, and Standard Chartered. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.