2 battered UK shares that could explode when the stock market recovers!

UK shares have been in turmoil in recent weeks and, let’s face it, the mini-budget certainly didn’t help things. But it has created opportunities.

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UK shares took a hammering after the chancellor’s first mini-budget that promised an unfunded increase in spending and tax cuts. At the time of writing, the FTSE 100 is trading below 7,000, having spent much of August around 7,500.

But the FTSE 250, which tends to be a better reflection of the health of the UK economy, is down 10% over the past month. And while my portfolio has taken a hit, it’s also a good time for me to look at buying more of those stocks that I believe in the most while they’re trading at knockdown prices.

So here are two stocks that have taken a battering in recent weeks that I’m looking to buy.

NatWest Group

NatWest Group (LSE:NWG) had been one of the shining lights of my portfolio. But the stock has fallen 14% over the week and is currently down 8.5% over the past 12 months.

The stock plummeted after the government’s mini-budget caused shockwaves through the banking sector. Many companies withdrew a big slice of their lending products from the market with the Bank of England (BoE) forced to intervene.

Things worsened when it was reported that the government was considering changing the BoE’s money-printing programme to avert a £10bn payout to banks.

However, there is one big positive. And that’s the fact interest rates are rising and might even hit 6% next year. A 6% base rate is really going to slow the appetite for new loans — that’s what it’s supposed to do. But it will also have a phenomenal impact on revenue.

Net interest margins (NIMs) have risen considerably this year and it’s already had an impact on banks’ revenues. But with interest rates potentially doubling over the next six months, banks should become vastly more profitable.

I appreciate that inflation and recession forecasts are not good for credit quality but, because of expanding margins, I’d buy more NatWest shares today.

WH Smith

WH Smith (LSE:SMWH) is down 14% over the week and 31% over the year. Perhaps, more interestingly, the company is down 40% over three years. But the company recently said group revenue is coming in “comfortably in excess” of pre-Covid levels.

WH Smith said that travel revenues have surged to 129% of 2019’s pre-Covid level in the 26 weeks ended August 27, and group revenues hit 112% of 2019’s result over the same period. But high street revenues were still lagging, it said.

Moreover, brokerage Berenberg recently highlighted the company’s defensive growth profile and limited exposure to cost inflation, adding that the retailer’s North American expansion story can drive shareholder returns for years to come.

In addition to this, I’d also suggest that demand for travel is pretty robust right now, despite the macroeconomic environment, while airport footfall and airline seat capacities are improving. The company’s outlets are predominantly positioned at train, bus and airport terminals.

Trading just below 1,200p, I’d add more WH Smith stock to 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.

James Fox has positions in WH Smith and NatWest Group. The Motley Fool UK has no position in any of the shares mentioned. 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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