Differentiating between the two is very important! Here’s one stock I think looks undervalued, but another I’m very cautious about.

Building on the future

Let’s start with the company I believe is undervalued: Travis Perkins (LSE:TPK). It’s down 18% in the past month, but up 11% over a broader one-year period.

The hit in the past month came mostly from the release of the company’s full-year results. It showed trading conditions remain subdued, with weak housing activity dragging on demand for building materials. Revenue dipped by 0.9% and adjusted operating profit fell 12.5%, and the group swung to a £97m loss after impairment charges and restructuring costs piled up.

Even though housing activity remains a risk going forward, I think this could just be a dip in the share price. For one, the balance sheet has improved dramatically. The firm has moved into a net cash position for the first time in decades, giving it resilience and flexibility. Free cash flow has also come in stronger than expected, which matters far more than accounting losses over the long run.

Further, we shouldn’t forget this is still a highly cyclical business. If the conflict in the Middle East ends and UK interest rates fall later this year, consumers should feel more confident, helping to boost the construction and housing markets. This should then translate to a meaningful rebound in volumes and investor sentiment.

Therefore, I see the stock as undervalued given where it could be trading by the end of the year, and feel investors could consider buying it.

No recovery signs yet

On the other hand, I’m continuing to stay away from recruitment firm Hays (LSE:HAS). A month ago, I wrote about the company, which was trading at the lowest level in decades. Yet I decided it wasn’t the right time to buy, which was a good call, as the stock’s down 17% over the last month. It’s down 59% in the last year.

Right now, the job market’s weak for Hayes. Economic uncertainty across Europe, particularly in key regions such as Germany and the UK, is dampening hiring activity. And when hiring slows, recruiters like Hays feel it almost immediately.

Yet it’s not just about waiting for a recovery in the labour market. Hays is struggling on other fronts, with news at the end of February that the CEO would be stepping down, alongside poor financial results. The company has even slashed its dividend by 84%, never a signal that things are going smoothly.

It’s true that Hays hasn’t lost its relevance. It remains one of the largest recruitment firms in Europe. It has a strong global footprint and deep relationships across industries. When hiring eventually recovers, I expect the stock to bounce back. However, from where I’m currently standing, I still believe there’s further room for the stock to fall before I want to buy.

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Building materials supplier Travis Perkins (LSE: TPK) is one. It operates through a range of outlets, including Toolstation, as well as selling under its own name.

The share price has fallen nearly 70% since a high in 2021, taking it 50% down over the past five years. I know the construction business has been suffering under the cosh of high interest rates. But I can’t help feeling this fall looks overdone.

Turnaround time?

The company has seen earnings sliding in recent years, falling to a loss per share in 2024. At FY results time, chair Geoff Drabble recognised that “uncertainty remains regarding the strength and timing of a recovery in UK construction activity.” But he believed the company was “better placed to benefit from returning demand” and predicted “attractive returns for shareholders over the medium-term.”

Forecasts suggest a return to positive earnings for the full year, even if only modest. But they then expect EPS to more than double between 2025 and 2027.

We still lack evidence of that turnaround, though. In the first quarter we saw revenue fall 2.4% year on year. But if a first-half update due on 5 August suggests the company is past the worst, I think we might see a share price uptick.

If not, the shares could fall further, as we’re still in risky times. But as long as the company can keep net debt from rising, I think it has the potential to come out the other side smiling. It’s a long-term consideration in my book.

Housing recovery

I’m convinced the UK’s housebuilding business has very attractive long-term prospects. High mortgage rates can damage short-term demand. But that won’t change the country’s chronic housing shortage.

I wonder whether Bellway (LSE: BWY) is well placed to benefit from the recovery when it finally happens. City analysts think so, and they see a return to earnings growth kicking in as soon as this year.

A June trading update reported “robust trading through the spring selling season, with an increase in customer confidence and reservation rates compared to the first half of the financial year.“

Year-end guidance

The company predicted a full-year build volume of between 8,600 and 8,700 homes, up from 7,654 last year. And we could be looking at an operating margin of 11%, compared to a prior 10%.

On the valuation front, a forward price-to-earnings (P/E) ratio of 15.5 doesn’t scream ‘cheap’. Not with today’s economic outlook. But if the forecasts are right, we could see it as low as 11 by 2027.

The next trading update is due 12 August, and it’ll give us an idea of how well the full year is turning out. Even if it’s good, I don’t expect any quick share gains. We might need longer-term evidence of a sustained recovery for that. Inflation is still a risk too, up higher than expected in June.

But I’m considering a long-term investment, even though I already hold housebuilder shares.

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At Q3 time in October 2024, new CEO Pete Redfern said it was “clear that the group has allowed itself to become distracted and overly internally focused which has led to the underperformance in recent periods“. Then in February 2025 he stepped down due to ill health.

And then the company delayed its 2024 full-year results because its auditor needed more time. I do hope the new release date of 1 April isn’t a bad omen.

Brighter times ahead?

Despite the gloom, the company stuck with its full-year outlook for operating profit at around £135m. The company also said its “key end markets are stabilising with some very early signs of recovery“. But any “growth will be slow and non-linear at the outset“.

Analysts seem cautiously optimistic, though they’re expecting a lofty 2024 price-to-earnings (P/E) ratio of 30. But if the recovery they’re expecting comes off, that could fall to only around nine by 2026.

The home improvement market still looks tough, and I still see this as risky. In fact, a stronger housing market could have a mixed effect on Travis Perkins. It did well from home improvements during the Covid lockdowns that stopped people moving house.

But I see it as a good candidate to consider for investors who go for recoveries.

Retail restructure

WH Smith (LSE: SMWH) is due to release first-half results on 16 April. And though the name is set to disappear from our high streets, it looks like it could be a good investment to consider in our changing retail landscape.

On 28 March, the company announced the sale of its UK high street business to Modella Capital for an enterprise value of £76m. It will now focus on its travel business, which accounted for 75% of revenue and 85% of trading profit in the past financial year.

The WH Smith brand is not included in the deal. So we’ll still see it at airports, railway stations, and other travel outlets. Those who only know the name from the high street might be surprised that there are more than 1,200 WH Smith travel shops spanning 32 countries.

Better value?

I see this as a good move. Forecasts suggest P/E multiples of 11 dropping to around nine over the next few years. But they’ll need reworking after the latest disposal news.

CEO Carl Cowling said: “As we continue to deliver on our strategic ambition to become the leading global travel retailer, this is a pivotal moment for WHSmith as we become a business exclusively focused on Travel.”

A change in stategy can bring risk. And the mere dumping of high street retail might scare some investors away. But it’s a Stocks and Shares ISA possibility for me.

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With that in mind, here are two income stocks I’d be comfortable buying now and forgetting about.

A bank under the radar

The first company on my list is Investec (LSE:INVP). The share price is up 2% over the past year, with a current dividend yield of 6.33%.

In order to give me the peace of mind to buy and hold this for many years ahead, I want to tick two boxes. The first one relates to how sustainable the dividends will be.

The past doesn’t always correlate to the future, but it does give me a good feel. Therefore, when I note that the bank has been paying a dividend for the past two decades, it does make me confident that the next two decades could be similar.

The other factor is if the firm can still be in business for the long term. Again, I think that Investec ticks this box. The bank has been operating since the 1970s in South Africa. Since then, it has expanded to the UK, the US, and many other markets worldwide.

Revenue and profitability have been strong since the pandemic, thanks to rising interest rates. Granted, I don’t see the firm becoming a top tier bank to rival the likes of HSBC or Barclays. The risk is that any growth potential will be capped due to the strong competition from bigger rivals. But this doesn’t take anything away from the ability for it to still be a very profitable enterprise.

Building for the future

Another idea is Travis Perkins (LSE:TPK). The UK builders’ merchant and DIY store can technically trace its history back to 1797. It has existed in the current business form since 1988.

The dividend yield of 5.12% might not be the highest in the FTSE 250, but I certainly feel I could buy this stock for income and forget about it. Travis Perkins did briefly halt dividend payments in the initial phase of the pandemic, but resumed them in 2021.

What I like about the firm is that it should have consistent demand from customers. Regardless of the state of the economy, the products supplied are necessities for many. Therefore, I’m confident that if I bought this stock now, the company would still be in business in a decade or more.

The share price is down 22% over the past year. Part of this was due to the profit falling in H1 2023 results. This was down to weaker demand in new build housing. It’s true that the firm is impacted by the wobble in the property sector, and this is a risk going forward.

I’m thinking about buying both dividend stocks now and putting them in my long-term portfolio.

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One stock I want to take a closer look at is Travis Perkins (LSE: TPK). Should I buy or avoid the shares?

Home-improvement business

Travis Perkins is one of the UK’s leading building materials and home improvement retailers. It also makes money from the sale and hire of tools. The company sells to trade and DIY customers through its extensive store and online presence.

Over a 12-month period, Travis shares have remained pretty stagnant. They’re trading for 758p, as I write. At this time last year, the shares were trading for 755p. More tellingly for me is the fact that the shares have dropped 29% from 1,078p since the beginning of February. This is when macroeconomic issues started to impact FTSE stocks. Plus, the shares have dipped since a subpar Q3 trading update yesterday.

The bull and bear case

Starting with Travis’ Q3 update, the headline for me was that the business revised its profit projections for the full year from £240m to between £175m and £195m. It cited tough market conditions including rising inflation and the cost-of-living crisis. Revenue and like-for-like sales have both declined by 1.8% compared to the same period last year. This is disappointing but understandable as the housing market is in limbo and home repairs aren’t a priority for many right now.

From a bullish perspective, Travis is in a good position to benefit once any economic recovery begins. It has a great network and market presence. Plus, when you factor in that housing demand, which is outstripping supply in the UK, needs to be addressed, it could recover from its recent woes. Performance and returns could be boosted if and when this happens.

At present, Travis shares are trading on a price-to-earnings ratio of close to 11. This is slightly higher than the benchmark for similar FTSE businesses, which is 10.

Next, Travis shares offer a dividend yield of 4.8%. This is higher than the FTSE 250 average of 1.9%. However, with difficult trading conditions and profits being revised, there is a chance dividends could be slashed or even cut altogether.

A FTSE stock I’m watching for now

I’ve decided I’m going to keep Travis Perkins on my watch list for a few reasons. Firstly, I already own shares in Howden Joinery Group, a similar business in the industry. I feel it’s better equipped to deal with the current headwinds plus I don’t want to overexpose myself in one industry by buying Travis shares. Next, the profit revision is off-putting. I want to see full-year results before I potentially revisit my stance.

There are things to like about Travis, including its passive income offering, if it can maintain its dividend. Plus, a market turnaround in the housing sector and economy generally could help the business recover from the current tough period.

The post Should I buy this FTSE home-improvement stock as it dips? appeared first on The Motley Fool UK.

Travis Perkins

Builders’ merchant and home-improvement retailer Travis Perkins (LSE:TPK) is back in the news on Wednesday. Unfortunately, it’s for all of the wrong reasons.

Sales are crashing at the company as the housing market cools and repair, maintenance and improvement (RMI) spending sinks. Today, it said that like-for-like sales dropped 1.8% between July and September, a result that forced it to reduce its full-year profits forecast.

Adjusted operating profit is now tipped to range from £175m-£195m, down significantly from an estimated £240m it spoke of just two months ago.

Travis Perkins shares have fallen around 7% on the news and are trading around 52-week lows. So the business now trades on a forward price-to-earnings (P/E) ratio of 10.8 times. This sits just above the widely regarded value benchmark of 10 times.

But I believe the company merits such a low rating. The UK economy is tipped for a prolonged downturn, while higher-than-usual interest rates also look set to persist. Therefore, any turnaround in its end markets could be a long way off.

Travis Perkins has a huge retail footprint, which should put it in a good position when conditions eventually improve. But the prospect of sustained profits pressure and a steadily-rising debt pile still makes it one cheap share I’m keen to avoid. I believe it’s share price could keep collapsing.

JD Sports Fashion

Sportswear/lifestyle retailer JD Sports Fashion’s (LSE:JD.) shares have been on my watchlist for some time. And following heavy share price weakness in 2023, I’m thinking about making it my next share buy. Today, the FTSE 100 company trades on a forward P/E ratio of 10.6 times.

On the one hand, the low valuation of JD shares could be considered fair given the uncertain outlook for the world economy and therefore consumer spending. Sellers of premium products like branded sportswear and trainers could be considered especially vulnerable to customer cutbacks.

However, the retailer’s resilience in spite of recent difficulties suggests this rock-bottom rating is undeserved. Organic sales soared 12% during the six months to July, with revenues helped by market share gains in key markets.

As a long-term investor there are two things I’m especially excited about when it comes to JD shares. Firstly, the global athleisure (casual sportswear) market is tipped to continue growing strongly, as the graphic below shows.

Secondly, the company remains committed to rapid expansion to fully capitalise on this opportunity. JD — which operates more than 3,300 stores across Europe, North America and Asia — is on course to open 200 new outlets in the current financial year alone. It’s also investing heavily in its e-commerce channels.

Analysts at Shore Capital recently described the company as “materially undervalued”. I’ll be looking to add JD shares to my portfolio when I next have cash to invest.

The post Are these FTSE 100 and FTSE 250 shares NOW too cheap to miss? appeared first on The Motley Fool UK.

Resilient business performance

Despite a worsening economic backdrop, so far I think the business performance shows resilience.

Last month it updated the stock market on its performance in the third quarter. Total sales grew 10.7% compared to the same period the prior year, with like-for-like sales growth coming in at 7.4%.

The Toolstation division returned to growth and its European business reported sales 23.3% above the same quarter last year. That suggests there is strong future expansion potential for that part of the business.

I do think the recession could hurt spending on building materials and perhaps Travis Perkins’ sales and profits. So far though, there is little if any evidence of that happening. Longer term, I think the business has some real strengths that could help it thrive. It has a well-established branch network and established customer base. Its brands are strong and can help it expand into new markets, as seen at Toolstation.

The company has been focused on cost discipline. That could help it maintain profit margins even as cost inflation grows. Doing that is important as the company has already seen margins slip. In the first half, the adjusted operating margin fell to 7.9% from 8.2% in the same period a year ago.

Why has the share price tumbled?

In the past year, the share price has fallen 44%. Clearly some investors perceive risks given growing weakness in the housing market. But for a business with long-term strengths that continues to perform well, is that fall justified?

I do not think so. The company’s P/E ratio now looks very cheap to me. I may not be the only investor thinking this way, it seems. Since the last week of September, the share price has put on 19%.

That could mean it has reached a turning point as investors reassess the business and its valuation. I think the shares may keep rising from here. The underlying business is in good health, trading is strong and the valuation looks cheap.

The £902m of net debt reported by the company in its interim results is higher than I would like to see. If servicing that eats into cash flows, there could be a risk to the dividend. For now, though, the dividend yield of 4.4% is attractive to me.

I’d buy!

I like the long-term story here. I see a mismatch between it and the current share price.

So if I had money to invest today, I would buy these shares for my portfolio.

The post Has the Travis Perkins share price reached a turning point? appeared first on The Motley Fool UK.

There are not many of these opportunities on the London market. It takes a lot of time to uncover these world-beating companies, but I believe I have been able to isolate two potential opportunities. 

With that in mind, here are the two UK shares I would buy for growth today. 

UK shares for growth

The first company on my list is information technology (IT) infrastructure solutions provider Softcat (LSE: SCT). This business has grown at breakneck speed over the past few years. Since 2016 its earnings per share have grown at a compound annual rate of 24%.

As the world becomes more digitised, I expect the demand for this company’s services will continue to increase. As long as management continues to invest in the organisation’s capabilities and expand its footprint, I think the business can rise to the challenge.

That said, this is quite a competitive market. Softcat will need to keep investing and putting its customers first if the enterprise is going to remain a leader in this market. 

Even after taking this challenge into account, I believe it is one of the best UK shares to buy for growth. Considering its position in the market and potential for expansion over the next five to 10 years, I think the stock is undervalued. 

Building growth

I would also acquire Travis Perkins (LSE: TPK) for my portfolio. This distributor of building materials and products across the UK is not the only company in the sector, but it does have one of the most extensive footprints. This footprint gives the corporation substantial economies of scale. That means it can provide services and products to customers at a lower cost than many of its competitors. 

The business is currently having to deal with several challenges. These include the supply chain crisis and rising materials costs. These headwinds could have an impact on the company’s growth in the next few years as it works through the issues. 

Nevertheless, I believe Travis has the qualities required to pull through this uncertainty. It could even emerge stronger on the other side if its competitors start to struggle.

City analysts are forecasting a 40% expansion in the enterprise’s profits this year as it capitalises on the UK’s booming construction market.

Based on these projections, the shares are selling a forward price-to-earnings (P/E) multiple of 12.7. I think that looks cheap compared to the company’s growth potential. This is why it sits at the top of my list of the best UK shares to buy for growth today.

The post UK shares to buy for growth today appeared first on The Motley Fool UK.

Meanwhile, luxury goods retailer Mulberry Group (LSE: MUL) saw its stock climb 20%. Shares in the fashion firm have risen by more than 50% over the last year.

What’s happened — and why are shareholders seeing these big moves today?

Travis Perkins share price falls on Wickes split

Shares in FTSE 250 builders’ merchant Travis Perkins are falling today, but this isn’t due to any bad news from the company. What’s happened is that the Wickes business, owned by Travis Perkins, has now been spun out into a new company.

Travis Perkins’ shareholders will shortly have shares in Wickes credited to their share accounts. Wickes shares will trade on the London market under the symbol WIX.

Today’s share price fall reflects the loss of the value of the Wickes business. But Travis Perkins shares could rise again in the next few days, as the firm plans to carry out a share consolidation.

This means Travis Perkins’ existing shares will be replaced with a reduced number of new shares. The number will be calculated to try and “maintain broad comparability” in Travis Perkins’ share price before and after the demerger.

All of this will happen automatically — existing shareholders will see the TPK shares in their accounts replaced with new shares. The overall effect should be that the combined Travis Perkins and Wickes shares will be roughly equal to the value of Travis Perkins shares before the split.

Of course, the two companies will trade independently now, and their values may move in different directions, over time. Shareholders who don’t want to own shares in both businesses can choose to sell either Travis Perkins or Wickes.

Why split?

The reason given for the split is Travis Perkins is focused on larger trade customers, whereas Wickes is focused on DIY, home improvement and local trades — the “do it for me” market. Travis Perkins’ management believes both companies will be able to perform better independently.

Even before today’s split, both companies were said to be trading well. On 15 April, Travis Perkins issued a first-quarter trading update reporting “an encouraging start to the year.” Management said first-quarter sales at Travis Perkins and Wickes were significantly ahead of the same period last year.

Mulberry share price rockets 20%

Luxury handbag group Mulberry has been through a tough time in recent years. Mulberry’s pre-tax profit has fallen from a high of £36m in 2012 to a loss of £48m in 2020. This slump wasn’t just due to the pandemic — the group reported a £5m loss in 2019.

Finally, shareholders have had some good news. The company says that sales during the year to 31 March have been better than expected. This is due to stronger online sales and reduced discounting.

Mulberry had been expected to report a loss for the year just ended, but the company now expects to report “a small underlying profit before tax” for 2020/21.

Mulberry’s share price remains more than 85% below the highs of over 2,100p seen in 2012. But the company’s performance does seem to be improving. More details are expected in July, when Mulberry will publish its 2020/21 results.

The post Travis Perkins and Mulberry are today’s big share-price movers: here’s why appeared first on The Motley Fool UK.

UK shares I’d buy 

The UK construction sector is booming. And to play this theme, I’d buy Travis Perkins (LSE: TPK). One of the biggest suppliers to the building market, the company should benefit from the rising demand for materials. 

Analysts expect earnings to increase rapidly over the next two years, reaching 108p per share in 2022, up from 93p in 2019. I think the company should be able to use this growth to reinvest in new facilities and products, which would ultimately increase its appeal to customers in the long run.

The biggest challenge the group faces is the cyclical nature of the construction industry. The sector is expanding right now, but it could take a sudden turn for the worse. That would be bad news for Travis. 

Still, considering its near-term potential, I’d buy the stock as part of a basket of UK shares today. 

Income and growth 

As one of the only publicly-traded hedge funds, I think Man (LSE: EMG) could be a great addition to a portfolio of UK shares. 

The purpose of hedge funds is to make money in all markets. Man has a solid track record of doing so and producing attractive returns for its public investors along the way. Indeed, analysts believe the stock’s dividend yield will hit 4.8% in 2021, although this is just a forecast at this stage. 

What’s more, based on current forecasts, the stock is currently dealing at a forward P/E of 12. That looks cheap to the market average of 16, in my view. 

However, I do think the business deserves a slight discount to the broader market. Hedge fund profits can be highly volatile. So, while Man has a good track record of generating profits for investors, there’s no guarantee this will continue. It also uses a lot of borrowing. As such, just one bad year could result in considerable losses. 

Due to the risks outlined above, this stock may not be suitable for all investors. But I’d buy Man for my portfolio of UK shares today. 

Asset management

Asset managers tend to do well in rising stock markets. With that in mind, as UK shares reach new all-time highs, I think the outlook for Rathbone Brothers (LSE: RAT) is bright.

The company is one of the UK’s most storied asset and wealth managers. Its reputation should continue to attract customers. Moreover, management has been complementing organic growth with acquisitions. I think these twin tailwinds should help the business go from strength to strength. 

The primary risk facing the business is the same as I’ve outlined for Man. A lousy year of trading could hurt management fee income. Also, if the group suffers reputational damage, customers could quickly move elsewhere. 

Even after taking these risks into account, I’d buy the stock for my portfolio of UK shares. 

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