Every month, we ask our freelance writers to share their top ideas for value stocks with investors — here’s what they said for September!
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Babcock International
What it does: Babcock International delivers engineering and training services to armed forces in the UK and overseas.
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By Royston Wild. Following Russia’s invasion of Ukraine in early 2022, conditions in the global defence sector are currently at their strongest for decades.
This is reflected by the sky-high valuations of some major weapons builders. BAE Systems, for instance, trades on a huge forward price-to-earnings (P/E) ratio of around 20 times.
But there’s still great value on offer in the UK defence sector. Babcock International (LSE:BAB) is one such share on my own radar right now.
Not only does it trade on a sector-leading forward P/E ratio of 12.6 times. Its corresponding price-to-earnings growth (PEG) ratio of 0.3 sits comfortably inside value territory of 1 and below.
Like its industry peers, Babcock is performing strongly as arms steadily budgets ramp up. The FTSE 250 firm enjoyed organic sales growth of 11% during the 12 months to March. Meanwhile, its order backlog meanwhile increased 9%, to £10.3bn, providing it with solid earnings visibility going forwards.
Supply chain problems remain a threat going forwards. But on balance, I think Babcock’s an excellent stock to consider in September.
Royston Wild does not own shares in Babcock International or BAE Systems.
Barclays
What it does: Barclays is an international bank with presence in over 50 countries.
By Charlie Keough. My top British value stock for September is Barclays (LSE: BARC).
The stock is up 47.8% in 2024, but I still see value. As I write, it trades on just 9.1 times earnings. That’s below the FTSE 100 average of around 11.
What’s more, I’m excited by the moves the bank has made in recent times. In its full-year results, the firm’s CEO announced the business’ plan to save billions over the next few years as it attempts to address the weaknesses that have kept it behind competitors.
That said, its streamlining process comes with risks. Should it fail to achieve its targets, that could leave shareholders disappointed. Also, I’m wary of falling interest rates impacting its margins.
However, with the firm promising to return £10bn to shareholders through dividends and share buybacks by 2026 alongside its cheap value, I’m bullish on Barclays for the long run. If I have the cash, I’ll be topping up on Barclays shares this month.
Charlie Keough owns shares in Barclays.
British American Tobacco
What it does: British American Tobacco is one of the two big UK-listed tobacco producers, and a leader in next-generation products.
By Alan Oscroft. For me, a value stock needs a number of key characteristics. And I think British American Tobacco (LSE: BATS) has them.
Valuation looks good, with forecasts putting the stock on a price-to-earnings (P/E) ratio of only 8.6, not much more than half the long-term FTSE 100 average. And rising earnings forecasts would drop that even lower.
On the dividend front, we’re looking at a forward yield of 8.5%. That’s with cover by earnings of around 1.3 to 1.4 times, which seems plenty good enough for a business with clear forward sales.
Barriers to entry are high, too.
Value needs to be sustained in the long term, and the future of the tobacco business has to be the biggest risk.
But change is slow, and British American Tobacco is ahead of its rivals in developing non-smoking (and less unhealthy) alternative products. Its customer base is, literally, addicted.
Alan Oscroft has no position in British American Tobacco.
JD Sports Fashion
What it does: With a presence in 38 countries, JD Sports Fashion is a high street and online sportswear/fashion retailer.
By James Beard. The JD Sports Fashion (LSE:JD.) share price is currently 39% below its all-time high at the time of writing, achieved in November 2021. And yet for the year ending 1 February 2025 (FY25), it’s forecasting a much higher profit before tax of £955m-£1.035bn (FY22: £421m).
Also, I don’t think the share price reflects the full impact of its recent acquisitions, in particular that of Hibbett Inc. Its February 2024 accounts disclose turnover of $1.73bn and net income of $103m. Numbers for the US retailer are not reflected in JD’s FY25 forecast.
But there are risks. Physical stores account for 75% of sales so there’s a threat from online rivals who don’t pay property taxes. And it’s estimated that 50%-55% of its revenue comes from Nike, the American sportwear giant that recently downgraded its sales forecast.
However, with a price-to-earnings ratio of roughly half what it was three years ago, I think now could be a good entry point.
James Beard owns shares in JD Sports.
