UK stocks were recently named the most attractive in Europe, with analysts pointing to positive valuations and supportive trends within the British economy.
That marks an incredible turnaround from a 18 months ago, when UK-listed companies were reportedly the least popular worldwide.
So investors looking to benefit from this new wave of positive sentiment may want to consider these two stocks, both having been tipped to outperform the market.
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Bargain fashion
Frasers Group (LSE:FRAS) has been tipped by several analysts as a stock to surge into 2025, but some are suggesting the company has an image issue stemming from majority owner Mike Ashley.
Some investors may not appreciate the group’s diversification away from the core Sports Direct chain and via the group’s ownership of luxury retailer Flannels and positions in businesses like Hugo Boss and Mulberry.
And this is part of Frasers Group’s strategic shift, known as the ‘Elevation Strategy’, which focuses on targeting more affluent customers. The strategy has also been beneficial for Sports Direct, with the company deepening ties with brands such as Nike and Adidas.
The plan for growth also includes entering the ‘buy now, pay later’ market.
The company has faced some challenges, including poor weather and high interest rates impacting British retailers, but analysts say the stock’s now positioned for growth. In July, it reported that profits had hit the top end of its guidance range, with pre-tax earnings expected to surge into 2025.
Drawbacks? Well, the UK economy isn’t out of the woods, and interest rates remain high by recent standards, putting pressure on discretionary spending. There’s also fierce competition within the fashion retail market, and this has pushed earnings lower in some parts of the sector.
Moreover, the stock is trading at a discount to its peers, at 7.97 times forward earnings, suggesting it could be undervalued and poised for growth.
Starmer may be good for sofas
DFS Furniture (LSE:DFS), one of Britain’s largest furniture retailers, may benefit from changing economic conditions, according to analysts.
The company has struggled in recent years with lockdowns, staff shortages and supply-chain disruptions. However, things are looking up.
The company’s maintained a strong market position, holding a 38% share of the sofa retail market, over three times the size of its nearest competitor. This market leadership allows DFS to benefit from economies of scale and industry-leading profit margins.
Moreover, DFS’s strategic focus on younger customers aligns with the anticipated housing boom, as UK premier Sir Keir Starmer has called for 1.5m houses to be built by 2029. More homes mean more furniture.
DFS certainly doesn’t look cheap on near-term metrics. According to forecasts for 2024, the stock’s trading at 39.7 times earnings. That presents a risk to investors.
However, earnings are expected to surge, with the forward price-to-earnings ratio falling to 16.7 times for 2025 and 8.06 times in 2026.
As such, this is a stock that could start to look cheap very quickly, if it delivers on expected growth.
My take
I don’t have a position in either of these stocks, but there are certainly supportive trends that could push both higher. I’ll be keeping a close eye on both of them and have added them to my watchlist.
