Value stocks are characterized by stable and reliable returns, rather than the volatility associated with growth stocks. I find it best to have a mix of value and growth stocks in my portfolio. This way I can reduce my risk while also getting some exposure to potentially large returns.
Lately, I’ve been considering three UK shares on the FTSE 100 that could add more value to my portfolio.
Standard Chartered
While high street UK banks struggle, I’m looking for value in this smaller, UK-based bank that serves Africa, Asia, and the Middle East. Standard Chartered (LSE:STAN) doesn’t provide retail services to UK customers but rather cross-border banking services for international clients.
But this hasn’t helped it avoid issues in the UK banking sector. The Standard Chartered share price is down 17% over the past year, falling to £5.78 after reaching a high of nearly £8 in March 2023. I think this provides an excellent opportunity to get them while they’re cheap.
At only 0.41, Standard Chartered has one of the lowest price-to-book (P/B) ratios on the FTSE 100. This suggests the stock is heavily undervalued and should have a lot of room to grow. In addition to the potential returns, I would also benefit from a small 3.6% dividend yield, although the bank doesn’t have a great track record of making payments.
Legal & General Group
Legal & General (LSE:LGEN) is another reliable value stock I believe will make a great addition to my portfolio. Not only is it trading at an estimated 56% below fair value but has an exceptional dividend yield of 8%. However, it’s worth noting that this isn’t well covered by cash flows, so dividend payments could be volatile.
I think insurance is a reliable sector to invest in, as I don’t expect the industry will run out of customers any time soon. Even though Legal & General shares are down 4% over the past year, the company’s earnings are forecast to grow by 3% per year going forward.
While Legal & General enjoyed significant growth after 2008, the past five years haven’t been kind to the share price. With interest rates falling and the economy recovering, I think its luck will turn around in 2024.
SSE
SSE (LSE:SSE) is one of the UK’s largest gas and electricity providers. I think energy is another reliable industry that’s likely to benefit from consistent demand for the indefinite future.
The SSE share price fell sharply in early 2020 but recovered in the coming years. Recently, it’s been trading in a range between £17 and £19. It’s down 5.6% this year and could still fall further but I think this price is a good entry point for me.
The 5.5% dividend yield is decent but not well covered by earnings or cash flow, so payments could be unreliable. The company also has a high level of debt and reduced profit margins from last year. Still, with a market cap of £19bn, I think SSE is a stable business that promises steady gains in the long term.
