Bargain or basket case? 3 UK stocks close to 52-week lows

High inflation and a cost-of-living crisis has meant some UK stocks are really struggling. Our writer considers whether it’s time to load up or steer clear.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

Should you invest £1,000 in Scottish Mortgage 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 Scottish Mortgage made the list?

See the 6 stocks

These headwinds have more than halved the company’s valuation, pushing the shares down to levels not seen since…2010!

Created with Highcharts 11.4.3Burberry Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

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.

Created with Highcharts 11.4.3Diageo Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

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.

Created with Highcharts 11.4.3Mony Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

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%.

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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.

Paul Summers owns shares in Mony Group Plc. The Motley Fool UK has recommended Burberry Group Plc, Diageo Plc, and Mony Group 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.

More on Investing Articles

Investing Articles

£20K invested in Tesla stock last April is now worth…

Despite all the bad headlines lately, Tesla stock has put in a storming performance over a 12-month timeframe. Is this…

Read more »

Investing Articles

If a 40 year old invests £600 a month in a SIPP, here’s what they could have by retirement

With no retirement savings at 40, an investor could put £600 a month into a SIPP and grow its value…

Read more »

Stack of British pound coins falling on list of share prices
Investing Articles

Why hasn’t its 9.9% yield boosted the Phoenix share price?

Phoenix Group has a dividend close to double digits, but saw a weak share price performance in recent years. Christopher…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

With average 10% yields, these mid-cap FTSE shares could supercharge a passive income portfolio

Some of the best passive income gems can be found on the UK's smaller indexes like the FTSE 250 and…

Read more »

A coin being dropped into a piggy bank
Investing Articles

As the Barclays share price tanks 19% in 2 days, is this a great buying opportunity?

As a trade war sends the Barclays share price into a tailspin, Andrew Mackie steps back to look at the…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Is Fundsmith Equity still a good choice for a Stocks and Shares ISA in 2025?

Many Britons hold the Fundsmith Equity fund in their Stocks and Shares ISAs. Is this still a good move? Edward…

Read more »

Investing Articles

Nvidia stock is down 24% this year. Time to buy the dip?

Christopher Ruane has been eyeing Nvidia stock as a potential addition to his portfolio for a while. Is a recent…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Down 25% since January, this resilient dividend stock’s catching my eye

Maintaining the UK’s rail, water, and energy infrastructure isn’t the most exciting business. But it has made this a solid…

Read more »