Some UK shares offer tremendous value right now. Here’s what I’m doing…

Warren Buffett once said: “Price is what you pay, value is what you get.” With this in mind, James Beard takes a look at the valuations of some UK shares.

| More on:

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.

UK financial background: share prices and stock graph overlaid on an image of the Union Jack

Image source: Getty Images

Identifying value shares is fundamental to successful investing. But finding companies whose stock prices underestimate their true worth can be time consuming. Fortunately, there are plenty of ways to find those hidden bargains.

Here are just a few of them along with some potentially undervalued FTSE 100 stocks.

The tool of pros

Most analysts use discounted cash flow (DCF) techniques when determining company valuations. Indeed, this is the approach favoured by Warren Buffett, when he talks about identifying the intrinsic value of a business.

In simple terms, this involves estimating the future cash flows of a company and then applying a discount factor – to reflect the time value of money and risk — to come up with the present value of these flows. A comparison’s then made to its market cap.

Although these calculations are sensitive to the assumptions made, they remain popular with City professionals.

Some of the DCF results I’ve seen suggest that Legal & General’s currently priced at approximately 60% less than its fair value. Similarly, Barratt Redrow is said to be trading at a near-50% discount.

Other methods

Less complicated approaches include looking at a company’s share price relative to its earnings (past and forecast) and then comparing it to others in the same industry.

Based on their historic and forward price-to-earnings (P/E) ratios, both International Consolidated Airlines and JD Sports Fashion appear to offer good value at the moment.

Another popular technique is to compare a company’s accounting value (assets less liabilities) with its stock market valuation. A figure less than one could indicate a bargain.

On this metric, Vodafone looks cheap. At 30 September 2025, its book value was £49.1bn. However, today (22 January), its market cap’s approximately £23.6bn. This gives it a price-to-book (P/B) ratio of just 0.5. But care must be exercised as not all assets on a balance sheet can be quickly converted into cash and, in some circumstances, are valued using DCFs.

Of course, I would have to do more research before deciding whether to invest in these companies but I think some of the valuation methods highlighted here are a good way of coming up with a shortlist of potential candidates.

Already banked

One stock that I’ve looked at in more detail is Barclays (LSE:BARC). And because it appears undervalued to me, it has a place in my ISA. Its P/B ratio is 0.9, which is the lowest of the FTSE 100’s five banks. And based on its 2024 earnings, its P/E ratio is the second-lowest on the index, beaten only by NatWest Group.

By 2027, analysts are expecting earnings per share to grow by 64% compared to 2024. This implies a forward earnings multiple of only 8.2.

But there are challenges. An economic slowdown will likely increase the bank’s losses from bad loans. And its net interest margin could suffer if borrowing costs fall in line with expectations.

To help spread risk, Barclays operates a diversified business model, with its investment arm and wealth management division generating roughly the same income as its traditional banking operations.

After weighing everything up, I think Barclays is a cheap UK share to consider. But it’s just one of many UK stocks that I think offer excellent value at the moment. That’s why I’m trying to buy as many as I can.

James Beard has positions in Barclays Plc, JD Sports Fashion, Legal & General Group Plc, and Vodafone Group Public. The Motley Fool UK has recommended Barclays Plc, Barratt Redrow, and Vodafone Group Public. 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

Two white male workmen working on site at an oil rig
Investing Articles

As oil prices soar, is it time to buy Shell shares?

Christopher Ruane weighs some pros and cons of adding Shell shares to his ISA -- and explains why the oil…

Read more »

Man hanging in the balance over a log at seaside in Scotland
Investing Articles

How much do you need in an ISA for £6,751 passive income a year in 2046?

Let's say an investor wanted a passive income in 20 years' time. How much cash would need be built up…

Read more »

Smiling black woman showing e-ticket on smartphone to white male attendant at airport
Investing Articles

Why isn’t the IAG share price crashing?

Harvey Jones expected the IAG share price to take an absolute beating during current Middle East hostilities. So why is…

Read more »

piggy bank, searching with binoculars
Growth Shares

1 UK share I’d consider buying and 1 I’d run away from on this market dip

In light of the recent stock market dip, Jon Smith outlines the various potential outcomes for a couple of different…

Read more »

Burst your bubble thumbtack and balloon background
Investing Articles

AI may look like a bubble. But what about Rolls-Royce shares?

Bubble talk has been centred on some AI stocks lately. But Christopher Ruane sees risks to Rolls-Royce shares in the…

Read more »

Black woman using smartphone at home, watching stock charts.
Investing Articles

Will the BAE Systems share price soar 13% by this time next year?

BAE Systems' share price continues to surge as the Middle East crisis worsens. Royston Wild asks if the FTSE 100…

Read more »

Portrait of pensive bearded senior looking on screen of laptop sitting at table with coffee cup.
Investing Articles

Is this a once-in-a-decade chance to bag a 9.9% yield from Taylor Wimpey shares?

Taylor Wimpey shares have been hit by a volatile share price and cuts to the dividend. Harvey Jones holds the…

Read more »

Chalkboard representation of risk versus reward on a pair of scales
Investing Articles

Way up – or way down? This FTSE 250 share could go either way

Can this FTSE 250 share turn its fortunes around? Or has its day passed? Our writer looks at both sides…

Read more »