Who doesn’t love a bargain? Well, I’ve spotted a fair few UK stocks trading at or near 52-week lows at the moment.
But are these just ‘value traps’ I should be avoiding?
Burberry
It’s fair to say that luxury firm Burberry (LSE: BRBY) is struggling. High inflation and the subsequent cost-of-living crisis have hammered sales around the world.
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These headwinds have more than halved the company’s valuation, pushing the shares down to levels not seen since…2010!
So, is this a bargain? A price tag of 16 times forecast earnings is a bit high. However, it is lower than Burberry’s average valuation over the last five years (21 times earnings). It’s also hard to deny the iconic nature of the brand or the potential for further growth in increasingly affluent markets like China.
Assuming inflation doesn’t spike up again, the worst might be over. Then again, a significant amount of interest in the stock from short sellers suggests otherwise.
I’ll wait to see what the next trading update — due later this month — has to say before deciding whether Burberry is just a basket case.
Diageo
Another big company facing difficulties as a result of the fragile economic environment is drinks giant Diageo (LSE: DGE). Like Burberry, shares in this FTSE 100 juggernaut are touching 52-week lows.
That’s not surprising. When times are tough, discretionary spending on things like booze was always likely to fall. There’s growing evidence that alcohol consumption among younger people is declining anyway.
On the flip side, Diageo owns some of the more recognisable and popular premium drinks in the world, including Johnnie Walker whisky and Captain Morgan’s rum. It’s also a truly global company — selling its tipples in almost 180 countries. This surely makes it more defensive than most listed firms?
At 17 times earnings, the shares are far below their five-year average valuation (24 times earnings). There’s even a 3.1% dividend yield on offer for those prepared to wait for a recovery.
Of course, no one knows for sure whether that recovery will come. But I do believe this is more likely to be a bargain hiding in plain sight than not and one I should snap up when cash becomes available.
Mony Group
A final stock worth touching on is one I already own: comparison website specialist Mony Group (LSE: MONY).
Unfortunately, the shares haven’t performed as I might like in recent years due to the energy market being so uncompetitive. Such an environment was never going to be ideal for the owner of Moneysupermarket.com, which gets a cut when people switch supplier via its site.
Still, the shares change hands for just 13 times forecast earnings. That looks great value for a business that generates far better returns on the money it puts to work than most in the market. Margins are also sky high.
I need to be wary of bias here. A higher-than-expected rise in utility prices later in the year could prolong the pain for investors as well as consumers.
However, a lack of interest from short sellers is heartening. If and when the economic outlook does improve — perhaps as a result of interest rates finally being cut — I’m hoping to reap the rewards.
In the meantime, the shares yield a chunky 5.5%.
