I’m looking for beaten-down quality UK shares to buy this December. Markets have been volatile recently, and sometimes this throws up bargains for my portfolio. Here are two stocks that have fallen this year that I’m considering buying.
An investment platform
The first company is Hargreaves Lansdown (LSE: HL). It’s a huge investment platform in the UK with over £120bn in assets under administration across 1.5m clients.
But since 2019, the share price has been in a downward trend. In a year the stock is down 10% as I write. There’s been a cloud hanging over the firm since the Woodford Equity Income fund collapsed. Hargreaves Lansdown is facing potential legal action as it was a heavy promoter of the fund. I think this is weighing on the share price today.
I view this as a quality company though. For example, it achieves huge operating margins (last year it was 58%), and the return on its capital is consistently in the double-digits.
The valuation isn’t too demanding either. The forward price-to-earnings (P/E) ratio is currently 24. This has lowered from around 40 since 2019, suggesting again how the share price has weakened over recent years.
Even though I view Hargreaves Lansdown as a quality company, I’m still hesitant to buy the shares due to the potential legal action on the horizon. I think this will weigh on the share price for a while longer, so for now it’s staying on my watchlist.
Another quality UK share
The next company is Moneysupermarket.com (LSE: MONY). It’s a large price comparison website for insurance, financial products and the energy sector. Its share price has also been in steady decline recently, and is down almost 17% in a year.
The company experienced lower demand across its travel and car insurance comparisons through lockdown as people were travelling less.
More recently, the spike in wholesale energy prices has made switching providers unattractive for consumers. Indeed, management expects negligible switching in the fourth quarter of this fiscal and calendar year. This will impact revenues generated from its price comparison service (energy switching was 16% of revenue in the fourth quarter last year).
Moneysupermarket.com does still achieve a high operating margin, and a return on capital in the double-digits. These figures have been declining over recent years, which I think reflects the difficulties the company has faced. Nevertheless, they still suggest that this is a quality business.
The valuation is also compelling. The P/E ratio for 2021 is 18, which falls to a very low 14 for 2022. I think this suggests that the recent issues at the company have been priced in to the shares.
It also announced the acquisition of Quidco in October. It’s the second largest cashback business in the UK, so it does fit well with Moneysupermarket.com’s other services.
In summary, I view Moneysupermarket.com as a quality UK share, and the valuation looks attractive. I’m considering buying the shares for my portfolio.
