3 UK value stocks I’d buy today

Value stocks are tipped to make a comeback in 2021 as the global economy recovers from last year’s downturn. Here are three value shares Ed Sheldon likes.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

Value stocks are tipped to make a huge comeback in 2021. Now that coronavirus vaccines are being rolled out and an economic recovery looks to be on the cards, many financial experts believe that ‘value’ will finally outperform ‘growth’.

Personally, I don’t plan to exactly load up on value stocks this year. That’s because many cheap stocks are cheap for a reason. That said, there are a few UK value stocks I like at the moment. Here’s a look at three I’d be happy to buy for my portfolio today.

UK value stocks

Packaging is a sector that I expect to perform well this year due to the continued growth of online shopping and one value stock I like in this sector is DS Smith (LSE: SMDS). It’s a leading provider of sustainable packaging with a focus on the e-commerce and consumer goods industries.

DS Smith’s profits took a hit last year due to the coronavirus. However, the company appears to be confident about its future prospects. “We are as excited as ever about the structural growth drivers for corrugated packaging with a number of trends accelerated by the Covid-19 pandemic,” the group said in December. It also said that it would be resuming its dividend.

I identified DS Smith as a top value stock in September when it was trading below 300p. Since then, it has risen to near 400p. However, I think the stock is still undervalued. Currently, the forward-looking P/E ratio is 14 – well below the FTSE 100 median P/E of 17.

A P/E ratio of 10

Defence giant BAE Systems (LSE: BA) is another value stock I like right now. Its share price is still nearly 25% below where it was pre-Covid-19. I view this share price weakness as a buying opportunity. Currently, the stock’s forward-looking P/E ratio is just 10.

BAE Systems held up well last year due to the fact that its revenues are largely government-backed. In a trading update in November, for example, the company advised that it had continued to deliver a resilient performance in line with its expectations.

Like DS Smith, the company appears to be confident about the future. “Our large order backlog and incumbent programme positions are expected to lead to strong and profitable top line growth with increasing cash conversion in the coming years,” the company said late last year.

Strong long-term growth potential

Prudential (LSE: PRU) is the third UK value stock I like. It’s a leading provider of financial services.

Prudential experienced some challenges last year. Sales were impacted by both the coronavirus and political uncertainty in Asia. However, looking ahead, the group appears to have attractive growth prospects.

Last year, the company advised that it plans to split off its US operations in 2021. This means that in the future, the group will be solely focused on Asia and Africa – two markets with massive growth potential. It believes that once it has separated off its US arm, it can achieve sustained double-digit growth in embedded value per share.

Analysts expect Prudential to generate earnings of $1.79 this year. This means that at the current share price, the stock sports a forward-looking P/E ratio of just 10.9. I think that’s a bargain for a company with such strong long-term growth potential. I’d snap up this value stock today.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon owns shares in DS Smith, Prudential and BAE Systems. The Motley Fool UK has recommended DS Smith and Prudential. 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

Growth Shares

Should I buy Rolls-Royce shares for 2025?

Edward Sheldon’s missed out on the huge gains that Rolls-Royce shares have generated this year. But should he buy the…

Read more »

Investing Articles

30,000 shares in this FTSE 250 REIT could earn me £559 a month in passive income

Real estate investment trusts can be great passive income investments. And Stephen Wright likes one from the FTSE 250 with…

Read more »

Investing Articles

Down 24% and yielding 9.18! Is L&G the best passive income stock on the FTSE?

Harvey Jones is the first to admit that the Legal & General share price has had a poor year. But…

Read more »

Investing Articles

Warren Buffett just bought these 2 stocks!

Warren Buffett just invested $700m in these stocks! What’s the strategy behind them, and should investors think about following in…

Read more »

Investing Articles

£10 a day invested in UK stocks could create a second income of £40,000 a year!

Investing even a small amount of money regularly can generate a substantial second income stream in the long run. Zaven…

Read more »

Content white businesswoman being congratulated by colleagues at her retirement party
Investing Articles

Are these the best stocks to buy and hold in a SIPP?

The UK has 30 ‘Dividend Aristocrats’ to buy and earn rising passive income in a SIPP, but are they the…

Read more »

Investing Articles

These UK shares are close to record cheap levels

These two UK shares are trading below their average earnings multiples, creating a potentially explosive buying opportunity for patient investors…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

My Stocks and Shares ISA has exploded in 2024. Here’s what I’m doing now

Zaven Boyrazian’s Stocks and Shares ISA is beating the FTSE 100 and S&P 500 in 2024. Here’s a look at…

Read more »