I’m backing the UK stock market to put on a strong show over the next few years. Therefore, I want to snap up value stocks that analysts think could perform strongly while I still can.
Before we delve into the stocks, I must note that analysts’ forecasts are just that: they’re predictions. The market is unpredictable.
That said, I like the look of these two. Without further ado, let’s get into it.
Should you invest £1,000 in Rio Tinto right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Rio Tinto made the list?
BP
I own shares in oil and gas giant BP (LSE: BP.), but at their current price I’m strongly considering buying more. The stock has been finding its feet so far in 2024. It’s up 2.8%.
Analysts have a 12-month price target for BP of 596.4p. That’s 23.1% higher than its current price. But what could help get it there?
For one, despite what many may believe, the demand for oil is actually set to rise in the times to come. That’s according to the International Energy Agency.
However, BP is a cyclical stock. When oil rises, so does BP. But a falling price tends to negatively impact investor confidence. As a result, BP can often go through bouts of volatility as oil prices fluctuate.
There’s also the renewable energy transition to consider. The world is trying to become greener, which doesn’t suit the business.
That said, the initial 2050 net zero target looks like it will be pushed back, meaning fossil fuels will be around for longer than expected. While BP has pumped plenty of cash into renewable energy projects in recent years, they’re proving to be more costly than initially thought.
As such, the business is turning its attention back to hydrocarbons. This should boost profits in the short term and could hopefully start the turnaround for its share price.
There’s another reason I own BP shares aside from their attractive valuation. It’s passive income. The stock has a dividend yield of 4.7%.
JD
Sticking with the theme of undervalued gems, I’ve had JD Sports Fashion (LSE: JD.) on my watchlist for a while now. It’s down 28.2% this year. With that, I see plenty of growth potential in its share price.
Analysts also think this could be the case too. The 12-month target price for JD is 162.3p. That’s a whopping 40.4% premium from its current price.
There will be plenty of challenges that JD must overcome to turn around its fortunes. The business has struggled over the last year or so due to tough trading conditions.
It has issued two profit warnings, which sent its share price spiralling. With consumers tightening their belts, the risk is that its share price just keeps sinking.
But the business is on track to deliver its full-year guidance. It’s expecting profit before tax to come in between £955m and £1.035bn. Should it achieve this, that would be a big boost for the business and investor confidence. With the first interest rate cut looking likely for August, this should lead to an uptick in spending.
The stock trades on 11 times earnings, which is in line with the FTSE 100 average. But compared to its historical average of 23, it looks like cracking value at the minute.
