Forever in search of bargains for their portfolios, five Fools have scoured the UK market for shares that they think are being overlooked!
What it does: Barclays is a UK-based global financial services provider with 48 million customers and clients worldwide.
By Matthew Dumigan. Scanning the FTSE 100 and FTSE 250, I see plenty of undervalued shares on UK indices. Out of all of them though, one in particular stands out to me. I reckon the market could be seriously underestimating Barclays (LSE:BARC) shares.
Admittedly, higher interest rates are increasing borrowing costs meaning arrears have been slowly creeping up. But Barclays is well capitalised and has plenty more going for it.
First of all, it’s a behemoth of a bank with a variety of income sources. For example, not only does it have the usual banking operations in the UK, but it’s also one of the largest global investment banks with a substantial UK/US credit card business.
In my view, Barclays manages to stand out in a crowded industry as its diversification provides an added layer of resilience that sets it apart from its peers.
And to top it all off, it looks like one of the more heavily discounted banks with a relatively low P/E ratio of 4.8.
Matthew Dumigan does not own shares in Barclays.
What it does: Barclays is a global bank with operations including retail and investment banking.
In all fairness, I’m not surprised given the volatility we’ve seen in the financial sector in recent times and the direct impact inflation has had. And investors are clearly not bullish on the firm in 2023, with it down nearly 10% as I write.
However, with a price-to-earnings ratio of just 4, Barclays seems like a steal.
Elsewhere, with a price-to-book ratio of just 0.4, the stock further looks cheap. And with a dividend yield of over 5%, in my opinion, Barclays looks like a share that investors shouldn’t be ignoring.
The bank will face pressures in times ahead, especially in its US business. Yet with its global presence and diversification, I think it stands in good stead to weather any storm. With many not keen on Barclays, I place it as a solid long-term hold.
Charlie Keough owns shares in Barclays.
What it does: Hargreaves Lansdown operates the largest retail investment platform in the UK. Currently, it has around 1.8m customers.
In my view, Hargreaves has considerable long-term growth potential. In the long run, it should benefit as Britons save and invest more within their ISAs and SIPPs (Self-Invested Personal Pensions).
It should also benefit from rising stock markets. As markets rise over time, so will its earnings.
None of this, or the fact that the company is one of the most profitable businesses in the FTSE 100 index, seems to be reflected in its valuation, however. Currently, the stock is trading on a P/E ratio of just 12 – below the market average.
Of course, there are some risks here. Rising levels of competition are one.
The cost-of-living crisis is another. This could limit individuals’ capacity to save and invest in the near term.
Overall though, I think the stock is being mis-priced by the market right now. I think it deserves a higher valuation.
Edward Sheldon owns shares in Hargreaves Lansdown
Phoenix Group Holdings
What it does: Phoenix is expanding from its initial business of buying up legacy pension and life funds. It has now acquired established insurers Standard Life, Pearl Assurance and Sun Life to keep the growth coming.
Its shares are down 23.98% over five years, 16.71% over 12 months and 6.83% over three months. They just keep sliding and sliding. It looks like a disaster zone, doesn’t it?
The £5.24bn group was hammered by last year’s stock market volatility, with assets under management crashing 16.5% to £259bn in 2022.
It posted a pre-tax loss of £2.26bn which isn’t good but adjusted operating profits edged up to £1.24bn when calculated under new IFRS accounting rules.
The Phoenix share price looks cheap, given recent performance, trading at 6.39 times earnings. Plus it offers one of the FTSE 100’s juiciest shareholder payouts, with a forecast yield of 10.1% in 2023 and 10.4% in 2024.
Ultra-high yields like this one are always risky. Phoenix generated £1.5 billion of cash last year and expects this to keep flowing.
If UK stock markets recover, the share price might rebound, too. Either way, investors get that income. I’ve added it to my wish list and would like to buy before Phoenix rises from the ashes and Mr Market starts to hold it in higher estimation.
Harvey Jones does not own shares in Phoenix Group Holdings.
Scottish Mortgage Investment Trust
What it does: Scottish Mortgage manages a portfolio of global growth stocks from both private and public markets.
The fact that the market is unsure about their valuations is pretty clear. Scottish Mortgage shares are trading at around a 20% discount to the value of the trust’s underlying assets. This is despite listed holdings like Nvidia and Tesla surging triple digits in 2023.
Granted, private companies are trickier to value, but most have now had their valuations slashed repeatedly. Payments platform Stripe has had its value cut by over 40% since 2021. It’s a similar story at ByteDance, the owner of TikTok.
Yet these aren’t tiny upstarts about to go bankrupt in a higher rate environment. They’re massive industry leaders with enormous cash generation potential. SpaceX, for example, has reportedly turned profitable after doubling revenue last year. Its Starlink business now has over 1.5m customers and is rolling out high-speed internet access to an additional 3bn people on Earth.
I think the market is underestimating how large these firms could be when they go public.
Ben McPoland owns shares in Nvidia, Tesla and Scottish Mortgage Investment Trust.