Down more than 30% in a year, I think these UK stocks could be primed to rebound

Jon Smith points out two UK stocks from the FTSE 250 that might be down over the past year but appear to have solid potential to rally back.

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UK stocks that have fallen in value present a unique opportunity. Although not all of them represent a strong buying case for an investor, some genuinely become undervalued. The steeper the fall, the larger the potential long-term rebound. With that premise, here are some on my watchlist right now.

A clear fair value discount

The NextEnergy Solar Fund (LSE:NESF) is down 31% over the past year. The FTSE 250 fund has over £1.2bn worth of assets under management, in the solar energy and energy storage areas.

The fall in the stock over the past year can be put down to several reasons. Forecasts for UK power prices have fallen, which has a negative impact on the business. This does remain a risk going forwad.

The continued high interest rates in the UK (above 5%) mean that debt costs become more expensive to service. Even though the total gearing (leverage) ratio isn’t that high at 46.4%, it still acts as a drag.

Despite all of this, I think it’ll rebound over the course of the next year. A large factor in this is the fall in the share price relative to the net asset value (NAV) of the fund. The latest estimated NAV is 33% lower than the share price! If the stock returns to a fairer level relative to the NAV, this would erase all the losses from the past year.

Further, if interest rates do start to fall later this year, this should ease investor concerns about the cost of leverage.

In the meantime, the 10.27% dividend yield is something that can provide a great source of income.

Down long term, up short term

Another option is Jupiter Fund Management (LSE:JUP). The 33% fall in the stock over the past year has pushed down the valuation to an attractive level.

What’s interesting to note is that in the short term, the stock is rallying. The positive full-year results released a month ago have seen the share price jump 12% since then. The report details how assets under management grew by 4% versus 2022. Underlying profit before tax hit £105.2m, up from £77.6m a year prior.

I think the stock can continue to rebound in coming months, as the latest earnings still only give a price-to-earnings ratio of 6.22. This is below the benchmark of 10 that I look for in setting the bar for a fair value stock. Therefore, given that the earnings per share will stay the same until the next results, a share price rally is the key driver that would pull the ratio closer to 10.

Of course, the risk of continued macroeconomic uncertainty exists. This is something the management team have flagged up. With a host of global elections, central bank policy meetings, and much more going on this year, it could be a rocky road for an investment manager like Jupiter.

Both stocks are on my watchlist at the moment, to look at buying when I have some free money.

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.

Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended Jupiter Fund Management Plc. 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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