The UK stock market is back in full swing, with the FTSE 100 up 6% in the past month. As tariff fears subside, many UK shares have posted double-digit gains since early April. International Consolidated Airlines is up a massive 30%, Carnival has soared 25% since early April, and Standard Chartered is up 18%.
But I don’t want to buy shares that have already made their best gains. I’m looking for the laggards that might catch up with the market in the coming months. To do that, I’m checking for high-quality stocks with low price-to-earnings (P/E) ratios.
Here are two potential winners that I think could do well in the coming years.
Barclays
Barclays (LSE: BARC) is up only 6.8% in the past month and has an impressively low P/E ratio of 8.4. That suggests lots more room for growth.
But what I really find attractive is its financials. The popular high street bank posted a tidy £5.32bn net income for 2024, up 24% from the previous year, with revenues hitting £24.3bn. Its investment banking arm pulled its weight with the purchase of Tesco Bank, a strategic move that’s set to increase its market share.
On the downside, its rapid growth over the past year has diminished its yield. Once a lucrative dividend payer, it’s now only returning 2.65% on each share. Still, not bad for that stock that’s up 47.6% since this time last year.
It’s also got a hefty debt-to-equity ratio of 1.47 — a figure that should ideally stay below one. Plus, its non-performing loans have ticked up slightly to 2.4%. This means if the economy takes a nosedive or interest rates wobble, things could get bumpy.
Scottish Mortgage
Scottish Mortgage Investment Trust (LSE: SMT) is another stock that looks set for gains this year. Even though it’s up an impressive 10% in the past month, it still has a low P/E ratio of only 7.1.
The fund invests largely in popular US tech stocks like ASML, Tesla, Nvidia, and Amazon. However, it also has an adequate amount of diversification into other sectors like pharmaceuticals and e-commerce.
In its latest annual results, it posted a net profit of £1.37bn, bouncing back from a loss of £2.92bn the year prior. Plus, it’s trading at a discount of about 11% to its net asset value (NAV), which could be a bargain for savvy investors.
A key risk is the concentration in US tech, which could lead to significant losses if an economic slowdown hurts this sector. Plus, with a broad exposure to private companies and emerging markets, it takes on an added layer of complexity and risk.
Anything else?
Besides the above two stocks, I also like the look of the energy giant SSE and the student accommodation builder Unite Group. Both are yet to rally this year and have low P/E ratios and P/E growth (PEG) ratios.
When markets are rallying, it pays to hunt for stocks with strong earnings and low prices. The longer these stocks buck the trend, the bigger the boost could be when it comes. As always, in-depth market research and a diversified portfolio are key.
