To be fair, my opinion’s based in data. So let’s allow the data to do the talking.

The valuation today

On the surface, Jet2 looks decent value. It trades at 6.5 times forward earnings and many data sites will report it having a massive £2bn net cash position — that would be a lot for a company worth £2.2bn.

Delve a little deeper, subtract the deferred revenue, and it’s clear that net cash is actually closer to £800m. But that’s still substantial.

What it means is we’re looking at a company trading at around 3.5 times net income. Even by airline standards, that’s super-cheap. In fact, my calculations suggest that the industry average is around double that.

The difference is even more stark compared to Ryanair — I’m sitting on one of its planes as I write. The Irish firm is almost three times more expensive.

Looking ahead

Of course, there’s a danger of looking at near-term valuations and thinking something is cheap. That’s how investors find value traps.

Instead, we need to consider where the company’s going and make assumptions or forecasts. In the near term, earnings are actually forecast to stand still as Jet2 invests in new facilities at Gatwick as well as a continuing fleet renewal.

So where will the business be in five years? Well, we can’t know where jet fuel prices are going to be — that’s up to 35% of operating costs — and we don’t know what’s going to happen to travel demand.

The first thing to consider is that the company should have many more seats on sale by FY30 — as much as 25% more with the fleet reaching 150 aircraft and the seat gauge increasing around 7%.

The business also expects the fleet overhaul to deliver a 20% fuel saving per seat — equal to £10 per seat. However, not all of those savings will be realised by the end of the decade.

One scenario

I put all the data I had into AI chatbot Claude and asked it to produce a forecast through to FY30. It took a mightily long time, and it became evident that it took it very seriously.

Now, this forecast turned out to be quite optimistic, mainly around costs. It has fuel, marketing, and landing costs remaining consistent across the period. It’s possible. Fuel could be materially lower if the Iran and Ukraine conflicts conclude for good. Marketing costs could fall with AI. But I wouldn’t bank on it.

So what did the headline numbers say? Well, it’s got revenue moving from £7.2bn last year to £10.5bn in FY30. And after two years of stagnation, it sees earnings per share move from around 206p to 355p as EBITDA almost doubles.

The bottom line

Of course, there are risks. If oil stays elevated, the thesis is blown apart. And that’s why it pays to stay diversified. However, it’s clear that there’s huge potential at Jet2. So much so, I believe it could be one of the biggest winners when UK investors regain their confidence.

Personally, I believe it’s well worth considering.

The post Trading at 3.5x net income, I think Jet2 could lead the next stock market recovery appeared first on The Motley Fool UK.

As most readers will know, the conflict in the Gulf has weighed on the stock market. Some stocks are down more than others. And that depends on their exposure.

Personally, my strategy is to buy stocks when the market is taking a hammering. It might sound painful, but it’s how some of the best investors operate.

However, I appreciate some investors may wish for tensions to die down before investing further.

Geography matters

Around 20% of the world’s oil passes through the Straits of Hormuz every single day. When that shipping lane is disrupted or threatened, oil prices stay elevated — and elevated oil doesn’t just mean expensive petrol at the forecourt. It ripples through the entire economy.

Jet fuel, which is essentially refined crude oil, is one of the largest single cost lines for any airline or package holiday operator (as much as 35% of operating costs). And food inflation is partly an oil story too, because energy costs sit inside fertilisers, packaging, cold storage, and logistics.

This is why both Jet2 (LSE:JET2) and Marks & Spencer (LSE:MKS) have been hit by the conflict despite having almost no operational exposure there.

Jet2: priced for disaster

Jet2’s share price has fallen 42% from its 52-week high to 1,121p.

It now trades at just 6.3 times forward earnings (P/E). That alone looks good value relative to peers, but the company also boasts an incredibly strong balance sheet. Remember, P/E ratios are only really relevant when they’re contextual.

Jet2’s balance sheet is fortress-like, and that makes it well positioned to navigate uncertainty like this. It’s a little confusing because of the presentation in the earnings documents, but the company appears to have a net cash position of £800. That’s substantial for a company generating about £400m in net earnings per year.

Of course, a prolonged conflict here is a risk. Jet2 is phenomenally well hedged — over 75% of jet fuel purchased for the year — but the longer the conflict goes on, the greater the exposure becomes to sky-high spot prices.

It’s worth considering. Definitely my favourite in the sector.

Marks & Spencer: just needs a clean break

M&S has had its own difficult year — remember the ransomware attack.

Right now, however, UK grocery inflation is still running at 4.3%, squeezing food margins and dampening consumer sentiment. The irony is that M&S’s underlying business is performing well — revenues rose 23% in its last half-year to £7.94bn, and analysts expect earnings per share to grow 46% this year to 22.7p. In turn, this implies a forward PE of just 10.7 times.

The war, of course, threatens more inflationary pressure, starting with fertiliser costs. The shorter the conflict, the quicker the recovery.

Nonetheless, this is an excellent business, with genuine operational momentum. It’s absolutely worth considering, and the risk profile will decrease if the conflict ceases.

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A big day for markets

The market surged today. The FTSE 100 added 2.7%. Germany’s DAX surged 4.9%. And US market jumped at the open. What’s more, oil plunged 15% to below $100 a barrel, marking the steepest single-day fall in nearly six years. Risk assets rallied across the board, from stocks to emerging markets to Bitcoin.

However, context matters.

This wasn’t a rally from a position of strength. Before today’s session, markets had been badly bruised by the conflict in the Gulf. The Nasdaq had already fallen more than 10% from its October 2026 high — the definition of a correction.

The S&P 500 was sitting roughly 9% below its peak, within touching distance of correction territory itself. The FTSE, though more resilient thanks to its energy and commodity weighting, had spent months grinding lower as inflation fears and recession risk weighed on sentiment.

While there had been Trump’s intervention in Venezuela and AI-related worries, the correction was caused by rising oil prices on the back of the war in the Gulf. Brent crude had surged more than 40% since the conflict began, rising from around $72 to over $106 a barrel after Iran closed the Strait of Hormuz.

That shock reignited inflation fears globally, froze central bank easing cycles, and raised the prospect of a stagflationary recession — the worst combination for equities.

The ceasefire helps to unwind all of that. Oil retreating below $100 gives the US Federal Reserve and the Bank of England room to cut rates. Lower energy costs reduce input inflation. Consumer confidence can begin to rebuild.

But the critical word is if. This is a two-week agreement, not a peace deal. The last time markets staged a major relief rally on a geopolitical development, the optimism lasted eleven days. If talks collapse, today’s gains will be reversed.

So, today could be a turning point…

Investing in the volatility

Broadly, I invest when the stock market pulls back and sit tight when it rises like today.

That said, there are still plenty of stocks that are trading well below their fair value. One of these is Jet2 (LSE:JET2).

Jet2 was punished by the conflict. As an airline and package holiday operator, it faced surging jet fuel costs as oil prices rose more than 40% from pre-war levels.

The stock now trades at 6.6 times forward earnings despite sitting on a tidy net cash position — about £800m, equivalent to two years net income.

Jet2 hedges fuel — roughly 75% of fuel for the year was already hedged. This meant it wasn’t too exposed to near-term surges in jet fuel prices.

However a prolonged conflict would have eventually unraveled that safety blanket. Therefore, the risk is that this ceasefire doesn’t stick and jet fuel prices remain elevated.

Still, at current levels, I think Jet2 looks worth considering for patient investors. I believe it’s one of the most under-appreciated stocks in the UK, with long-term growth supported by efficient fleet transition and new operations at Gatwick.

The post Is this the beginning of a stock market recovery? appeared first on The Motley Fool UK.

The theory is quite simple. Quality companies trading with a discounted valuation will eventually come good, especially if there’s a catalyst. Don’t get me wrong, I normally like to invest in stocks that are going up — positive momentum — but the Iran conflict has pushed the stock market into correction territory. Good businesses are trading a great prices.

Here are two worth watching.

Jet2

The leisure travel group has had a torrid year on the market. Shares are down around 40% from their 52-week high and sit nearly 17% below the 200-day moving average. However, the underlying business tells a very different story.

Revenue has grown at nearly 15% annually since 2020, and the company sits on net cash of over £800m — on a market cap of just £2.27bn. That’s extraordinary balance sheet strength for a travel company.

At a forward price-to-earnings (P/E) of just 6.5 times, it looks cheap compared to peers. But the real discount appears when we adjust for net cash.

Analysts have a consensus price target of 1,694p — roughly 47% above today’s 1,151p.

There are always risks. The end of the conflict in Iran could boost sentiment, but a prolonged conflict could impact margins. Fuel accounts for up to 35% of operating costs. The company has hedged over 75% of its fuel for FY27 and that provides some shelter… but the longer the oil prices remain high, the more it’ll impact the business.

Airbus

Airbus is one of only two companies in the world capable of building large commercial aircraft at scale. But it looks cheap for an industrial in a duopoly. It’s also cheap compared to Boeing (FY28 P/E of 15.5 versus 24.4) and has strong net cash position, unlike its American peer.

With a price-to-earnings-to-growth (PEG) ratio of just 0.8 times on 2028 forecasts and revenue heading towards €100bn, this looks like a quality compounder trading at a meaningful discount to its earnings trajectory.

Of course, the risks are well publicised. Airbus’s most pressing near-term challenge is its supply chain. The company has repeatedly missed its own delivery targets due to engine shortages and component delays. Any further production setbacks would push back the attractive 2027–28 numbers.

The bottom line

Both companies share the same profile: the business is in good shape; the share price has forgotten that. That’s often where recoveries begin.

These are actually two of the larger holdings in my ISA. In fact, excluding investments held in my SIPP, these are my two largest holdings on this side of the Atlantic.

Needless to say, I think they’re both worth considering.

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In additions to several benefits for the company (although I understand the benefits are becoming fewer), AIM-listed shares are exempt from stamp duty on purchases — saving investors the standard 0.5% charged on main market stocks.

So why am I interested in Jet2? Let’s dig in.

Momentum scores are poor

Jet2 is currently languishing near three-year lows. The stock looked cheap at the start of the year, and then President Trump took out Venezuela’s Nicolás Maduro — which temporarily pushed oil and aviation fuel prices higher, before launching a campaign against the Iranian regime, which has pushed them higher still.

Rising fuel costs are a direct hit to airline margins, and with no sign of geopolitical tensions easing, the market has punished the stock accordingly. Remember, fuel prices can represent up to 35% of operational costs.

When stocks fall, their ‘momentum rating’ does too. It’s quite simple when you think about it. These ratings are usually a part of quantitive analysis. Positive momentum coupled with strong fundamentals (valuation, profitability) are often a sign that a company could realise its fair value or more, sooner rather than later.

A little bit of optimism

Personally, I like to make sure I’m investing and not betting. But sometimes that isn’t always possible. On this occasion I already have Jet2 shares and I’m not willing to be rid of them.

So, the optimism. First, European airlines hedge their fuel needs. Jet2 has maintained a strong fuel hedging position, with over 75% of its jet fuel requirements for the financial year ending March 2027 (FY27) already hedged. That really limits the company’s exposure to what’s going on with fuel prices right now.

Then there’s the war itself. The US doesn’t seem to have an appetite for a protracted conflict. Prediction website Polymarket suggests a ceasefire before the end of June is likely. Things, of course, could move faster or slower. But in short, we can see that Jet2 is well hedged long after the most likely conclusion of the war.

We have to accept this is speculating to some extent. But if the war ends, fuel prices will moderate quickly, and aviation stocks will likely rise. That is positive momentum.

The rating change

So, let’s go back to this idea of quantitive analysis and quantitive scores. In short, a simple quantitive rating will be influenced by things like valuation, quality/profitability, revisions, and momentum.

Jet2 scores really well on valuation. It’s got a rock-solid balance sheet and trades at a huge discount to its peers. It’s also something of a quality pick with a leading position in the market.

However, momentum has been sorely missing, and earnings revisions (when analysts update their earnings expectations) are unlikely to have been positive recently. This part of the equation could change if the war ends.

And in short, that’s why I think Jet2 is worth considering. It could become a very well-rated quantitive stock.

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And with the ISA year closing on 5 April, “today” has a rather more literal urgency than usual.

Compounding to financial freedom

For most of us, the most powerful force in investing isn’t stock-picking skill or market timing. It’s compounding. This is the process by which returns generate their own returns, year after year.

A £10,000 investment growing at 10% annually becomes £73,000 after 20 years. Wait five years to start, and that same money only reaches £45,000. The cost of delay is enormous and that’s all because of compounding.

And history suggests the stock market has rewarded patient investors handsomely. Some companies have delivered returns that would have seemed almost unimaginable at the time of purchase.

Amazon — once dismissed as an overvalued bookshop — has turned early believers into millionaires many times over. Nvidia was just a graphics chip maker for years — it’s become one of the most valuable companies on earth on the back of the AI revolution.

But investors don’t need to look only to Wall Street for examples.

Closer to home, Jet2 (LSE:JET2) — the Leeds-based package holiday operator — has been one of the great long-run success stories on the London market. The company has quietly compounded shareholder wealth over the past two decades.

None of these were obvious at the time. The investors who benefited most weren’t necessarily the smartest in the room. They were simply the ones who started early and let compounding do its work.

Be greedy when others are fearful

From a Chinese proverb to the oracle of investing. Warren Buffett famously tells investors to be greedy when others are fearful, and vice-versa.

And, right now, investors are fearful. The market has entered corrected territory and this could be precisely the kind of moment Buffett had in mind.

Jet2, unsurprisingly, is one of the companies most impacted by the sell-off. The company’s fortune are directly linked to oil prices (jet fuel prices) which have surged since the start of the war in the Gulf.

Yet, it’s important to note that Jet2 has hedged its fuel needs and that provides a degree of insulation against near-term volatility in prices.

And, of course, the war won’t last forever — we all hope so, anyway. When it ends, oil prices should normalise, and much of the current concern could disappear almost overnight.

What remains is the valuation. And that’s where the real opportunity lies. The sell-off has pushed Jet2’s shares to a level that looks incredibly cheap relative to its earnings power. This is also at a time when the long-term picture remains entirely intact.

The stock is currently trading around four times forward earnings when we account for net cash. That’s half where its peer group sit.

Demand for package holidays is structurally inelastic and Jet2’s reputation for customer service is arguably the best in the sector.

The risk, of course, is a very prolonged conflict. However, I don’t see that happening. Jet2 is well worth considering.

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In both cases, the situation is more complex than it seems. But I think anyone looking for buying opportunities should give both of these stocks a closer look.

Valuations

One of the key pillars of value investing is to look for a margin of safety in case things go wrong. And at today’s prices, that looks very easy to find with both Jet2 and JD Wetherspoon.

Jet2 has a market value of £2.28bn. But its latest update reported £2bn in net cash on its balance sheet, which covers virtually all of this straight away. 

With JD Wetherspoon, the company has a market value of £750m and another £725m in net debt. This, however, is almost entirely offset by £1.4bn in property, plant, and equipment.

That means the stock market isn’t giving these businesses much credit for any future cash they generate. So, are these huge opportunities or too good to be true?

Jet2: cash is king?

The catch with Jet2 is that a lot of the cash on its balance sheet is already accounted for. Around £1.3bn is offset by what’s known as deferred revenues. 

This represents cash the firm has received up front but hasn’t yet provided the service for. In other words, holidays that people have booked but haven’t yet gone on. 

Deferred revenues don’t show up as debt, so they don’t affect the firm’s net cash position. But they do change the value equation for investors and means it’s not the bargain it first seems. 

Oil prices surging higher represent an ongoing and obvious risk. But I think Jet2’s impressive growth and new Gatwick operations, though, mean the stock is worth considering at today’s prices.

JD Wetherspoon: unlocking value?

With JD Wetherspoon, the reverse might actually be true. The value of the firm’s properties on its balance sheet could actually be understated based on how often it updates them. 

Investors, though, need to consider how realistic it is that the company is going to sell its properties to unlock their value. While I think it’s more likely than most, I don’t give it a high probability. 

That means it’s down to the firm’s cash flows. And I’m much more optimistic here with that big property portfolio keeping leases down to contribute to the lowest costs in the industry.

Hospitality has been under pressure from rising costs and this remains a risk. But pubs have been doing surprisingly well – and I think JD Wetherspoon is the best in the business.

Opportunities?

An initial look at Jet2 and JD Wetherspoon makes them look like investments with huge margins of safety. Alas, investing isn’t quite so straightforward.

My own view is that both companies have something in common. They’re some of the best operators in industries that have been historically difficult to do well in.

Cost pressures in both airlines and hospitality have been and remain challenges. But at times like this, I think investors could do well by taking a look at some of the top names.

The post 2 quality UK stocks trading below intrinsic value? appeared first on The Motley Fool UK.

Let me show you the arithmetic.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

The maths

To produce £20,000 annually at a 6% income yield, I need a portfolio worth roughly £333,000. Starting from £50,000, that means growing the pot by just under seven times. Daunting on paper. Less so once compounding gets involved.

At the FTSE 100‘s historical average of around 7% annual total return, £50,000 reaches £333,000 in around 29 years. Respectable, but slow. Push that return to 10% — broadly in line with the S&P 500‘s long-run average — and the same target is hit in roughly 20 years.

Get stock selection right and compound at 12%, and you’re there in closer to 17.

That gap matters. Three years of additional compounding, at this scale, is the difference between tens of thousands of pounds in income. It also shows the importance of starting early. I started early in relative terms, but I certainly wish I squandered less of my first salaries and put just a few hundred pounds a month way.

Now, none of this is guaranteed. Markets don’t move in straight lines. They never will. What’s more, past returns are no promise of future ones. But the framework is sound. The ISA wrapper means the taxman takes nothing along the way — no dividend tax, no capital gains, no income tax on withdrawals.

The question is which stocks to buy?

Where to invest

There’s a rule of thumb I keep coming back to with airline stocks: the market prices them for catastrophe and forgets to reprice them when things go well. Jet2 (LSE:JET2) is a great example right now.

Adjust for the net cash — and this is a cash-generative business — and it’s a stock trading at roughly 4.2 times forward earnings. The sector average sits closer to 9.5 times. That’s not a small discount. It’s the kind of gap that tends to close, one way or another.

This is the type of investment I typically look for. I’m not betting on future performance or things picking up. I’m investing because the market’s overlooking the opportunity.

Operationally, the picture’s genuinely exciting. Revenue’s forecast to climb from £7.6bn in FY26 to £8.3bn in FY27, underpinned by fleet expansion and the addition of Gatwick. This is a move that meaningfully widens Jet2’s addressable market in the UK’s busiest aviation corridor. Near-term earnings are absorbing that investment — hence why earnings are sitting still this year.

Yes, UK unemployment‘s at a five-year high and fuel costs are structurally unpredictable. These are factors to watch. Likewise, the market may also be under-appreciating the positive impact motor finance payouts could have on the leisure travel sector.

However, at this price, I think the risk/reward is genuinely compelling. It’s worth considering.

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The maths is straightforward. £500 a month is £6,000 a year. To generate that from dividends, I divide £6,000 by my portfolio’s yield:

• At a 4% yield, I need £150,000
• At a 5% yield, I need £120,000
• At a 6% yield, I need £100,000
• At a 7% yield, I need around £86,000

The higher the yield, the less capital required — but higher yields can signal higher risk. A stock paying 10% is often doing so because the market doubts the durability of those payouts. Getting the balance right is the real skill here.

Building towards the target

Inside a Stocks and Shares ISA, every penny of that £6,000 annual income is free of tax. No income tax on dividends, no capital gains tax on growth. HMRC doesn’t see a penny of it.

For many of us, building a £120,000 ISA is the scary part. However, with the £20,000 annual ISA allowance and dividends reinvested, the path to a £120,000 portfolio is shorter than many expect. Assuming an 8% total annual return, a full £20,000 yearly contribution reaches the target in under five years.

Investing £500 a month instead? The same pot arrives in roughly 12-13 years, with compounding doing the heavy lifting throughout. Achieve a market-beating 10% annualised return and that figure is reached even sooner — 11 years to be precise.

The recipe is consistency and compounding, coupled with the ability to find shares that appear materially undervalued. Investors also need to remain diversified, but not so diversified that they lack conviction in some of their investments.

Investing for success

For most of us, the important part is investing to build the portfolio. And a large part of that is selecting the right stocks. In recent years, my portfolio has been full of winners from British banks to Nvidia, AppLovin, Celestica and, more recently, Innovative Aerosystems, Alphabet, and Micron.

Looking forward, I’m keen on Jet2 (LSE:JET2), Marvell, and Sanmina Corporation, among others.

So what’s so great about Jet2? Well, it’s the cheapest airline stock I know, and it’s got great operational momentum. The company’s known by millions — partly because of its viral advertising campaign — and its expanding its operating locations (adding Gatwick this year) and its fleet.

Revenue’s rising fast, from a projected £7.6bn in FY26 to £8.3bn in FY27. This is being driven by the operational factors above as well as steady demand for leisure travel.

Earnings growth is on hold for the moment as Jet2 invests in the new Gatwick operations and continued fleet investment. However, I believe we’ll start to see those investments pay off in 2026.

Fuel prices and economic risk remain an ever-present threat. UK unemployment has reached a five-year high and that’s not great for consumer spending.

However, this remains a resilient market in the post-covid years. And my interest in this stock is mainly valuation related. At 4.2 times forward earnings, when adjusted for net cash, it trades 50% below the sector average. I certainly believe it’s worth considering.

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Therefore, some of you may be surprised to hear me say that I think an AIM-listed airline with a market-cap of £2.4bn could reach the FTSE 100. The first issue however, isn’t the market-cap, it’s the listing.

AIM’s not part of the FTSE UK Index Series, meaning companies listed here aren’t eligible for inclusion in the FTSE 100, regardless of their size. To qualify, a business must have a premium listing on the London Stock Exchange’s Main Market and meet the index provider’s requirements around free float, liquidity, and nationality.

In other words, even if the airline’s valuation grows to FTSE 100 territory, it would first need to move from AIM to the Main Market before it could be considered for promotion. Only then would market capitalisation become the decisive factor.

For context, companies on the Main Market typically get more attention. They even get an uplift because of investments from index-tracking funds.

Vastly undervalued

So what is the company? Well, it’s Jet2 (LSE:JET2) and I think there’s a good argument that this is one of the most overlooked stocks in the UK. It combines both operational momentum with a rock-bottom valuation. It’s also the largest AIM-listed stock and is often considered a likely contender to move to the Main Market.

To start with, the company’s growing revenue at an impressive rate. Excluding the pandemic years, we can see sales moved from $5bn in 2023 to a forecasted £7.6bn in 2026. It’s expected to reach £8.3bn in 2027 as its new operating hub at Gatwick comes online.

Admittedly, earnings are expected to stand still this year and next, and that’s largely related to the costs of bringing the Gatwick hub online. When complete however, it expands its reach to one of the most prosperous parts of the UK.

But the valuation’s the most important factor. The stock’s now trading around 6.1 times forward earnings. That’s good, and cheaper than most of its peers. Remember, valuations should always be relative to peer groups as well as other factors such as growth.

Here, we also need to point out that Jet2’s sitting on a net cash position of £800m. So when we factor that in, it’s actually trading around 4.2 times forward earnings when adjusted for the balance sheet. The peer group average is closer to 9.5 times.

This doesn’t automatically mean that Jet2 should be trading 120% above where it is today. But it’s a huge indication that the stock’s being overlooked.

The bottom line

Jet2 isn’t immune to the usual concerns for airlines. This includes a spike in fuel prices, which can account for as much as 35% of operating costs.

Nonetheless, I’m still very bullish on the long-term outlook here and absolutely believe it’s worth considering. I do wonder however, if Jet2 really needs the Main Market just yet. With all that cash and continuing buybacks, management may be content with being overlooked… for now.

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