Looking at some of the weakest performers in 2025, Diageo (LSE:DGE) stands out as a frail player, having dropped around 34%. And Severfield (LSE:SFR) has seen its market-cap shrink even further by 45% over the same period.

So are these now some of the best stocks to buy in 2026?

Diageo’s turnaround potential

Let’s start with the FTSE 100’s leading beverages business. Diageo’s been mired by adverse market conditions alongside poor strategic decisions from management. But with a new leader at the helm since 2026 kicked off, the company’s already making some radical moves to change its fate.

Portfolio optimisation efforts are already underway, with several of the group’s underperforming brands now under review for potential divestments. No new major disposals have yet been confirmed in 2026. However, such moves would rapidly raise some welcome liquidity to tackle outstanding debts while simultaneously refocusing the business on its best brands.

Of course, divestments also carry significant execution risks. There’s no guarantee Diageo will be able to get a fair price and may end up destroying shareholder value in the process. At the same time, with younger generations seemingly drinking less, it introduces some notable long-term demand uncertainty.

Nevertheless, with the stock trading at just 11.6 times forward earnings following its multi-year share price decline, that might be a risk worth considering.

Engineering steely resolve

Severfield, meanwhile, is another international enterprise hit hard in recent years. As the UK’s largest steel contractor, the business has been hit with a number of headwinds.

Rising commodity prices alongside US tariffs have been squeezing profit margins. And the impact has only been compounded by soft construction sector activity due to higher interest rates. The result has been a sharp decline in sales and a complete collapse of underlying operating profits.

However, the firm’s fortunes could be about to change. With interest rates still on a steady downward trajectory, commercial infrastructure projects have started ramping back up again.

That’s already translated into some early recovery signs for its order book, with management highlighting attractive large-scale projects landing in its 2027 fiscal year (ending in May). And with the UK government also outlining new infrastructure spending ambitions in the coming years, Severfield could be positioned for a multi-year recovery.

What’s the verdict?

To say which stock is the best is very subjective. But between these two fallen icons, Diageo currently looks more interesting, in my opinion. The business appears to have notably more levers it can pull to get things back on track, while Severfield appears more dependent on an external market recovery beyond management’s control.

But these aren’t the only businesses that could be top-notch stocks to consider buying right now…

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Risky, yes — but if these issues improve in 2026, all three could make an impressive comeback. I wouldn’t bet the house on any of them but a small allocation could deliver a chunky return.

Severfield

Tariff threats hit the share price of York-based structural steel contractor Severfield (LSE:SFR) in late 2024 and 2025. At the same time, higher steel costs hurt margins and sentiment, so last year’s numbers were rough. Plus, the final dividend was scrapped.

As a result, the price crashed by more than 50% through 2025. By now, though, the impact of these issues is most likely priced in. Steel remains in high demand and it’s hard to imagine there’s worse still to come.

Looking ahead, the order book is actually growing again and management is sticking to its 2026 guidance. At the same time, the company is refocusing on core projects like data centres and infrastructure. That gives decent visibility for earnings once pricing stabilises.

So if the wider economy calms down and Severfield pulls off this new strategy, a rebound from today’s levels is not unrealistic. Yes, liquidity is limited and there’s cyclical risk, so it may not be smooth — but I feel it’s worth consideration.

Synthomer

Synthomer (LSE: SYNT) makes chemicals that go into things like paint and building products, the type you’d see in B&Q or similar hardware stores. In 2025, orders tapered off and it suffered a sharp decline in sales. Investors got spooked, even though profit margins improved a bit. At the same time, the company still had heavy borrowings and leverage of around six times earnings, which is uncomfortable.

S&P subsequently cut the company’s credit rating to ‘junk’, warning about cash flow and banking covenants, further hurting confidence. As a result, the company’s share price took a brutal 57% hit, with investors wary about weakening demand and rising debt.

But a recent January update adds hope and looks like a step in the right direction. It reported positive free cash flow, slightly lower debt, and a £50m receivables deal from major shareholder Kuala Lumpur Kepong Berhad. Together, these improvements have eased pressure, suggesting a 2026 recovery is possible.

It’s still at high risk from tariff impacts and demand shocks, but the low price and improving numbers make it an appealing option to consider.

Microlise

Microlise (LSE: SAAS) provides technological transport solutions that enable customers to reduce costs and environmental impact. In November 2025, it released a trading update expecting revenue to fall below expectations, with cost measures including a 10% headcount reduction.

Big global customers were buying fewer systems, and some UK projects were delayed, including one with a big retailer after a cyber‑attack. This led to a sharp 30% drop in the share price.

However, final results released in January this year actually saw a 16% rise in recurring revenue, with strong cash growth and £5m in cost savings. Yes, the UK’s economic recovery is still in question, so the share price could be hit by further volatility.

But overall, this feels like a company stabilising, not sinking. In my view, a 2026 recovery looks quite possible, so it’s worth a look.

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Difficult external pressures

The company is Severfield (LSE:SFR). Even though you might not have heard of it, Severfield’s the UK’s largest structural steelwork company. Its projects span high-profile commercial buildings, stadiums, bridges and more. Essentially, it’s a critical contractor in large-scale construction, delivering the steel frameworks that underpin major developments.

Over the past year, the stock’s down 60%, so the market-cap now sits at just £96m. This has been driven by a challenging operating environment, with several factors involved. Rising steel prices and broader supply chain cost inflation have squeezed margins on existing contracts.

At the same time, delays in UK infrastructure and commercial construction projects have hit revenues, leaving order book visibility under pressure. Investor sentiment toward the UK construction sector has been weak, with concerns about slow economic growth and higher borrowing costs dampening demand for large-scale projects.

These external pressures have hit the stock hard, with full-year results released in June showing a statutory operating loss of £13.7m compared with a profit of £26.4m from the previous year.

Why it could be a great pick

A trading update earlier this week showed various positive green shoots. It reaffirmed the guidance for the coming quarters, so it appears there won’t be any large negative shocks financially. The UK and Europe order book is “providing the group with a good volume of future work”. In India, its joint venture is also performing better than expected. This helps to diversify revenues away from the UK market.

The company’s welcoming a new CEO, Paul McNerney, who is joining with 25 years of sector experience. If you want someone to help get the business back on track, this kind of experience should certainly help to reassure investors.

For some of the external factors, I think the pressures should ease. Steel prices are stabilising and supply chain bottlenecks are improving, which should help margins recover. Severfield also benefits from government-backed infrastructure projects, which are less cyclical than private developments. This should help to cushion any further negative impact from private sector demand.

With a price-to-earnings ratio of 7.51, I do think it offers attractive value. Granted, the risks relating to sentiment around the construction sector could linger for a while. Yet when looking at this for the long term, I’m seriously thinking about buying the stock for my portfolio.

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For Severfield (LSE: SFR), that engine is its dividend and a fresh change behind the wheel.

Over the past year, the UK’s largest structural steel specialist has seen its share price crash from 83p to just 34p – a gut-wrenching 58% decline.

The first blow landed in November when interim results failed to inspire confidence. While revenue rose 17%, operating profit swung to a £4.25m loss, compared to an £11.9m profit in the same period a year earlier. Investors were quick to punish the stock.

Things got worse in early March when broker Peel Hunt slashed its price target from 85p to 32p, citing concerns over margins and contract delays. And just when it looked like the pain might be over, July brought fresh US trade tariffs on steel imports. The share price promptly shed another 20%.

The company issued a statement downplaying any material impact from the tariffs — but the damage to investor sentiment was already done.

Dividends in focus

There is however, a silver lining to all this share price carnage. Severfield’s dividend yield’s now hit 10% and for income seekers, that’s enough to turn heads.

But the big question is whether those payouts can be sustained. The company’s currently operating at a loss and generating no operating cash flow. That’s not an ideal recipe for maintaining dividends.

But on the plus side, its balance sheet remains solid. Debt of £79.2m is comfortably supported by £183m of equity, and assets outweigh liabilities by almost two to one. It also boasts a decade-long record of paying dividends, which provides some reassurance.

But unless earnings recover, there’s a risk that those payouts could be scaled back to preserve cash. If so, investors may end up holding nothing more than a declining stock with no income advantage.

Signs of a turnaround?

There was a flicker of optimism last Friday (15 August) when Severfield’s shares closed up 7%. The catalyst? News that the board had appointed Paul McNerney as the new chief executive.

McNerney, who brings experience in both construction and industrial manufacturing, takes the reins at a critical time. With the market-cap down 65.7% year on year, it has slipped firmly into penny stock territory.

A credible turnaround strategy’s now essential to stabilise operations, protect the dividend and restore investor trust.

The verdict

Severfield’s problems aren’t insurmountable, but the challenges are significant. Margins are under pressure, investor confidence is fragile and the macroeconomic backdrop for steel demand remains uncertain.

Still, the combination of a historically strong balance sheet, an established dividend record and fresh leadership could provide the ingredients for a recovery. If McNerney can deliver a convincing roadmap back to profitability, the steel supplier might yet stage an impressive comeback.

For now, it’s one I’ll watch rather than pile into — but for risk-tolerant income investors, the potential gains of that double-digit yield may be worth considering.

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In 2025, one of the worst-performing UK shares has, so far, been Severfield (LSE:SFR). Since the start of the year, the stock’s fallen by almost 40%. And anyone who was unlucky enough to buy shares in November 2024 has seen their investment dip by over 60%.

Needless to say, that’s a painful loss. So what’s behind the collapse of its market-cap? And has this created a rare buying opportunity for long-term-thinking investors?

Investigating the problems

As usual, there are a lot of factors behind Severfield’s tumble into penny stock territory. However, the catalysts essentially boil down to a combination of operational, financial, and external challenges. They translated into multiple profit warnings.

Adverse market conditions created numerous contract delays that pushed a good chunk of revenue into its 2026 fiscal year. At the same time, competitive pricing from within the construction industry has resulted in persistent pressures on margins. So much so that its share buyback scheme was ultimately cancelled as pre-tax profits were halved and the net bottom line fell into the red.

Multiple rounds of guidance downgrades, the fall into unprofitability, and ongoing uncertainty of revenue timing have soured investor sentiment. With that in mind, it’s not surprising to see investors jump ship, causing the Severfield share price to crash.

Time to consider buying?

Following its latest results, the near-term outlook continues to look bleak, with dividends also recently suspended, sending shares tumbling even further. However, there’s some room for optimism.

The group’s UK & European order book has started to climb again, reaching £444m as of July, £324m of which is due within the next 12 months. This visibility provides some confidence that the company will be able to deliver on its renewed 2026 outlook.

At the same time, ramping demand, particularly from data centres and major London commercial developments, provides a nice long-term tailwind for Severfield’s steelworks business. And with cost disciplines being introduced today, the company appears to be repositioning itself for a recovery in the coming years.

After all, despite the financial pressures, its balance sheet’s net debt position, while on the rise, isn’t as bad as many analysts were projecting. And with the stock trading at a tiny price-to-book ratio of 0.5, even a modest improvement in margins or cash flow could trigger a rebound that pushes Severfield back out of penny stock territory.

The bottom line

So should investors be considering this business for their portfolios?

If management’s successful in stabilising the business and steel demand rebounds, Severfield could be a promising recovery play. But even if market conditions improve (which isn’t guaranteed), this still comes with significant execution risk. And recently, the group’s track record hasn’t been terrific.

Overall, like many penny stocks, Severfield’s definitely a high-risk, high-reward opportunity. It’s not one I’m keen on pursuing, but for investors with a greater risk tolerance, this may be a stock worth investigating further.

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In fact, the forecast would have meant a 20% yield as recently as April. But since a 52-week low that month, the share price has more than doubled. It is, however, still 57% below its 52-week high from back in November 2024.

Want a lesson about how short-term volatility can have a dramatic effect on a stock? Look no further. We need to pick apart what’s been happening at the structural steel supplier.

Disappointing update

See those two sharp dips in the share price chart above, last November and at the beginning of March? The first was on first-half results day.

Revenue rose 17% with underlying earnings per share up 14%. The board kept the interim dividend unchanged, and a £10m share buyback was ongoing. All fine so far.

But there’s no disguising the disappointment resulting from a downgraded full-year outlook. CEO Alan Dunsmore told us “the predicted recovery in certain sectors has been slower than previously anticipated, and pricing has remained tighter for longer than expected“. He added that “a number of large project opportunities for FY25 and FY26 have been either delayed or cancelled“.

The official line: “Underlying profits for FY25 are now expected to be below our previous expectations.”

And another one

Then in May, we heard that things were not better, with “project opportunities continuing to be either cancelled or delayed“. Full-year underlying profit before tax guidance was dropped to £18m-£20m. And it got worse, as “underlying profit before tax for FY26 is now expected to be below our revised expectations for FY25“.

With the focus turning to cutting costs and saving cash, the company cancelled its share buyback programme — although it had already come close to the planned £10m.

The 9.5% dividend yield predicted for the current year? Forecasts see a cut next year, with just a 4.3% yield on the cards for fiscal 2026. So that’s the end of the exciting story and I’ve been wasting everyone’s time?

I don’t think so. City analysts seem to agree that the shortfall is indeed a short-term one. And they see Severfield getting back on track with a 6.4% yield marked in for 2027.

Valuation

And what about my headline thing about a potential 43% undervaluation? That’s based on the top end of current brokers’ target prices, currently suggesting 68p. Maybe that’s too optimistic. But the average target of 56.3p could still make the shares look 31% undervalued. And even the bottom end of the range at 41p is still ahead of today’s price.

Those three different prices represent, well, the only three brokers who appear to be offering targets. And that small number of observers raises the risk.

But Severfield’s industry is very much a cyclic one, heavily affected by economic conditions. I fear full-year results could bring further disappointment. But I’m definitely considering this for what I see as its long-term value potential.

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For example, three that have caught my attention this month are Videndum (LSE:VID), Severfield (LSE:SFR), and Ultimate Products (LSE:ULTP).

Huge tumbles

In terms of business models, all three of these UK shares are quite different from each other. Videndum specialises in hardware and software solutions for content creators, Severfield’s focused on creating structural steelworks, while Ultimate Products sells a branded portfolio of homeware products. 

However, one common characteristic all these companies currently share is that their stock prices are in the gutter. And as a result, the forward price-to-earnings ratios are now looking quite attractive from a value investor perspective. So are these buying opportunities or value traps?

What went wrong?

Before jumping headfirst into a new value investment, it’s important to understand what’s driving the stock price down. Looking at these enterprises, there are a few factors at play.

However, the primary catalyst for each appears to be:

• A slower-than-expected rebound in the scripted TV markets following last year’s strikes has caused Videndum’s revenue to underperform, translating into profit warnings for shareholders
• Disruption within the construction industry has caused a number of Severfield’s key projects to be delayed or outright cancelled, with seemingly no sign of improvement on the horizon
• A combination of weaker UK consumer spending paired with retailer inventory destocking headwinds has caused demand for Ultimate Product’s offer to suffer while shipping costs continue to rise

There seems to be a common theme here. All three businesses are experiencing a cyclical downturn of some sort. But buying during a downcycle can potentially be lucrative if the firms are able to bounce back.

Time to buy?

Not all of these UK shares, even at their seemingly cheap valuations today, are tempting me to buy right now.

Severfield’s the cheapest, according to the forward earnings multiple. But these projected earnings for 2026 include profits for projects that should have materialised in 2025. And with construction headwinds looking unlikely to turn any time soon, the group’s downward journey might not yet be over.

Videndum seems to be in a better spot, cyclically speaking, as the film & TV industry’s recovering at a faster pace compared to the construction sector. Butthe co mpany’s also tackling debt and liquidity issues that management’s in the process of renegotiating.

As for Ultimate Products, the firm appears to offer a stronger financial offer with operational cash flow more than able to cover interest expenses and dividends to shareholders. Operating in a highly competitive industry does give me pause. However, its leading brands, such as Russell Hobbs, Salter, and Dreamtime, definitely give it a competitive edge.

With that in mind, value investors looking for cheap UK shares today might want to investigate Ultimate Products a bit more deeply.

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Steel for construction

Severfield is one of the UK’s leading suppliers of structural steel for major construction projects. This includes steel required for major buildings like stadiums, car parks, bridges, shopping centres, and more.

It is worth remembering that a penny stock is one that trades for less than £1. As I write, Severfield shares are trading for 69p. At this time last year, the shares were trading for 60p, which equates to a 15% rise over a 12-month period. It is worth noting that many stocks are down over this period due to the macroeconomic issues mentioned earlier pushing down global markets.

Infrastructure boom and solid fundamentals

Although the construction sector is impacted by economic issues, the government tends to focus on infrastructure spending to stimulate the economy. Furthermore, larger projects are scheduled and planned years before any work begins. I believe Severfield can benefit from all of this to boost future earnings and shareholder returns. After all, structural steel is a major component of any larger construction project.

At present, Severfield shares look good value for money to me on a price-to-earnings ratio of 10. In addition to this, they would boost my passive income stream on a dividend yield of 4.8%. This is above average for a penny stock. However, I am conscious that dividends are never guaranteed.

Finally, Severfield released excellent results for 2023 last month. It said that revenue increased by 21% compared to the previous year. More tellingly, profit increased by 23%, which was higher than expected. Earnings per share increased and it hiked its dividend by 10%. Furthermore, forecasts for the next two fiscal years look great in respect of revenue, profit, sales, and shareholder return growth. This is underpinned by an excellent order book and pipeline.

A penny stock I’d buy despite the risks

From a bearish perspective, Severfield could see its forecast for future results impacted by inflationary pressures. This is something it referenced in its annual report. Rising costs could eat into profit margins, which underpin growth plans as well shareholder returns.

Finally, Severfield does have a bit of debt on its books. This is something for me to bear in mind as debt is costlier to service when interest rates are rising. This increased cost could impact investor returns.

Despite the risks involved, I’m planning on buying Severfield shares. The passive income opportunity and recent results as well as an exciting forecast for the future have helped me to come to my decision. However, I do understand that past performance and forecasts are never a guarantee of the future. I’m buoyed by the general infrastructure boom throughout the UK and the EU, which should help Severfield boost its earnings, returns, and in turn, my holdings.

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Structural steel company Severfield (LSE: SFR) released a pleasing set of full-year results on 14 June and the shares rose around 8% on the day.

However, there may be more to come for shareholders because the figures are robust and the outlook is encouraging. Meanwhile, the valuation remains undemanding for the time being.

Profits shoot higher

The company said profits for the trading year to 25 March came in ahead of the directors’ prior expectations. And on top of that, there’s a “high-quality” order book. 

The directors think the post-period acquisition of a Dutch steel company called Voortman should help to accelerate the firm’s European growth strategy. 

Revenue rose by 22% compared to the prior year. And that drove an increase in underlying earnings per share of 18%.

The progress shows up in the cash account as well. During the period, the business moved from having net debt of just over £18m to a net cash position on the balance sheet of just under £3m.

The directors rewarded shareholders by slapping an extra 10% on the total dividend for the year.

A positive outlook

Looking ahead, the directors see a “significant” pipeline of opportunities in the UK and continental Europe. And many of the firm’s markets have a “favourable” outlook.

The Voortman acquisition should be earnings enhancing during 2024.

Meanwhile, in India there are post-pandemic growth opportunities. The directors pointed to a “very encouraging” outlook for the Indian economy with “strong” underlying demand for structural steel.

Chief executive Alan Dunsmore, acknowledged the uncertain macroeconomic environment generally. But the company is “confident” of delivering further trading and financial progress in 2024.

This report showcases robust trading and a positive outlook. So, it’s perhaps no surprise to see the stock move higher on the day. And to put the move in perspective, at around 64p, it’s about 7% down over the past year.

And that suggests a period of consolidation in the business and the stock, which I see as positive. With the shares moving essentially sideways, the business had an opportunity to build value.

The current valuation looks undemanding with the dividend yield above 5% and the earnings multiple in the ballpark of about eight.

Challenged by cyclicality

However, I’m not expecting a valuation up-rating to drive this stock. The business is highly cyclical and probably doesn’t deserve a higher multiple. And that cyclicality adds extra risks for the investor with a focus on the long term. A glance at the longer-term chart emphasises the dangers here.

Nevertheless, as general economic recovery hopefully gathers pace around the world, I see Severfield as being well-placed to benefit. And rising profits may drive the shares higher even if the valuation remains modest.

Indeed, some cyclical businesses can end up looking like fast-growth companies over several years when the business cycle is moving up.

So, I’d be inclined to dig into this stock opportunity now with further and deeper research. And I’d consider adding the stock to a portfolio of diversified positions. However, once in, I’d keep an eye on it!

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Although these companies can carry extra risks, many of them are sizeable, well-established businesses in real life — they’re just small by stock market standards.

Today, I want to look at penny shares that look decent value to me right now.

A strong turnaround

Construction and engineering group Costain (LSE: COST) specialises in infrastructure projects in sectors such as road, rail, and water. I’d expect that the long-term nature of this work should mean that Costain will be less affected by an economic downturn than businesses focused on commercial construction.

That’s not to say Costain hasn’t had problems. Just before the pandemic, the company was hit by £90m of losses on two big contracts that went wrong.

The pandemic then caused further problems, as some construction activity was paused. To stay afloat, Costain was forced to raise £100m from shareholders in 2020.

However, the group’s current management wasn’t responsible for these problems and have made changes to make future repeats less likely. The business now seems to be performing well.

Costain’s last results showed pre-tax profit up by 40% during the six months to 30 June. CEO Alex Vaughan said that bidding activity remained strong, especially in road and rail projects.

The order book stood at £2.7bn at the end of June last year and the company said that 90% of its revenue for the remainder of 2022 was already secure.

City analysts covering Costain shares have increased their earnings estimates for the company recently. However, the shares currently trade on a 2023 forecast price-to-earnings (P/E) ratio of just 4.3, which is unusually low.

2022 results are due later this month and should include an update on the outlook for this year. If the numbers are in line with expectations, I think the shares could do well. In my view, this could be a good buying opportunity.

An overlooked bargain?

My next pick also operates in the construction sector but is quite different. Severfield (LSE: SFR) is one of the UK’s leading producers of structural steel. This is used for large commercial projects such as office blocks, data centres and warehouses, as well as transport and other infrastructure.

It said its order book stood at £464m at the start of November, which is equivalent to around one year’s revenue. The company also said that the pipeline of new opportunities was still at “consistently high levels”.

The group’s pre-tax profit rose by 17% to £12m between March and September last year, compared to the same period a year earlier. The interim dividend was increased by 8%, putting the shares on track to deliver a 5.5% dividend yield this year.

I’ve followed Severfield’s progress for a while and haven’t found any serious problems.

At current levels, the shares are trading on a 2023 forecast P/E ratio of seven times earnings. That seems reasonably cautious to me. If trading remains stable this year as expected, I think the stock could perform quite well from this level.

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