3 value stocks I’d buy right now

Roland Head thinks market conditions could favour value stocks over the coming year. He’s found three he’d like to buy today.

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Falling share prices are always uncomfortable, but I think some good opportunities are emerging from recent dips. I want to look at three UK value stocks that I’d be happy to add to my share portfolio today.

A dirt-cheap bargain?

Royal Mail (LSE: RMG) shares have fallen by more than 30% over the last year. This slump has left the shares trading on six times forecast profits, with a prospective dividend yield of 6.8%.

Admittedly, profits are expected to fall this year as the boost from the pandemic fades. Rising fuel and labour costs are also a potential concern.

Even so, brokers’ consensus estimates suggest that Royal Mail will generate £349m of surplus cash in the 2022/23 financial year, rising to £412m in 2023/24.

My sums suggest that the near-7% dividend yield should be comfortably covered by Royal Mail’s cash generation, reducing the risk of a cut. An added attraction is Royal Mail’s large property portfolio. This business has plenty of asset backing, in addition to its trading profits.

I think Royal Mail looks like a classic value stock at current levels. I may add the shares to my portfolio in the coming weeks.

Energy market opportunity

My next pick is energy services firm Wood Group (LSE: WG). This business started out as a North Sea oil services provider, but offers a much broader range of energy operations today.

Unfortunately, the group’s diversification has coincided with a difficult period for energy markets. Debt has remained stubbornly high in recent years and profits have been disappointing.

Wood Group’s share price has dropped 15% over the last year and is 70% lower than five years ago. However, I think we’ve seen the bottom.

Wood is now selling its infrastructure business, which always looked like a mis-matched acquisition to me. At the same time, I expect the group’s core energy business to be enjoying improved demand, due to higher oil prices, plus continued growth in renewable projects.

Wood Group’s turnaround has taken a lot longer than expected. It’s not over yet. But this business is expected to return to profit in 2022 and could resume dividend payments in 2023.

Right now, I think Wood Group could be one of the best value opportunities in the energy sector.

An overlooked value stock

Chemicals group Synthomer (LSE: SYNT) has its heritage in the Malaysian rubber industry. Today, it produces a wide range of polymer-based products. These include latex gloves, foam for consumer goods, adhesives, and chemicals used by industrial customers.

The last three years have been a rollercoaster for shareholders. The shares rose from a low of 205p in March 2020 to 550p in 2021, as demand for latex gloves boomed during the pandemic.

Market conditions are now returning to normal and Synthomer shares have dropped back to around 300p.

One risk I can see is that slowing economic growth could have a knock-on effect on demand. With the boost from the pandemic gone, profits could disappoint.

However, I think that the share price already provides a fair margin of safety. Based on broker forecasts, Synthomer shares trade on less than eight times forecast earnings, with a dividend yield of 5.4%.

Synthomer could be the next stock I buy for my portfolio.

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.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Synthomer. 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.

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