Finding cheap value shares isn’t easy. Just because a stock is falling doesn’t always mean that it represents a good buying opportunity. However, I have a filter that flags up stocks that are close to (or are at) 52-week lows. From there, I can then assess whether the move is warranted or if it’s becoming undervalued. Here are two on the radar right now.
Demand from easing monetary policy
The first one is Marshalls (LSE:MSLH). Last week, the stock hit the lowest level in a year at 229p. Currently, the share price is down 10% over the past year.
The UK-based landscaping and building products company has struggled in the past year, mostly due to subdued activity in the housing sector. As interest rates have stayed higher for longer, mortgage rates have done the same. This has made it tricky for people to buy houses. Further, with economic growth rather sluggish, some are feeling the pinch on finances and so are putting off home improvement projects. This remains a risk going forward.
However, February inflation data showed a fall from 3% the previous month to 2.8%. This could allow the Bank of England committee to start cutting the base rate faster if inflation keeps showing signs of falling. In turn, this should help to boost client demand for Marshalls.
Further, the latest annual results showed strong cost discipline as the management team focuses on efficiency. Net operating costs were down 10% versus the year before. So even if the company needs to contend with another slow year for revenue, lower costs can offset this impact.
I think the stock is now cheap as the price-to-book ratio is 0.93, the lowest level in a decade. This valuation metric can help investors to assess the market price relative to the book value.
A potential German boost
A second idea is Essentra (LSE:ESNT). Down 39% over the past year and currently at 52-week lows, this reflects a much larger move than Marshalls.
The industrial components manufacturer recently posted 2024 annual results showing a 4.4% decline in revenue to £302.4m. Adjusted operating profit fell 7.2% to £40.1m, with the management team citing “softening market conditions” for the overall fall. The business had been guiding towards lower results, hence the move lower in the stock price over several months.
With a price-to-earnings ratio of 12.4, it’s below the FTSE 250 average, making it potentially undervalued from that angle. Yet the other big factor relates to a possible surge in demand from European clients. Recently, Germany announced plans for a huge £420bn infrastructure investment package. With nearly half of firms revenue coming from the continent, it stands to win big if this fund takes off soon. I don’t believe this potential is reflected in the current share price, making it cheap in comparison.
Of course, one risk is that market conditions remain weak for longer than expected, causing the share price to fall further before recovering. This is true, but ultimately an investor should have a multi-year long-term investment horizon.
I think both value ideas are worth considering by investors at the moment.
