UK value stocks are rising. Here’s a FTSE 100 share I’d buy today

After years of underperformance, UK value stocks are making a comeback. Here, Edward Sheldon highlights one of his favourite FTSE 100 value shares.

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UK value stocks appear to be making a long-awaited comeback. After years of underperformance, many value shares are climbing higher.

I don’t plan to load up on value stocks. That’s because many of these are cheap for a reason. That said, I do think there are some great opportunities in this area of the market at present. With that in mind, here’s a look at a UK value stock (in the FTSE 100 index) that I’d be happy to buy for my portfolio today.

A top FTSE 100 value stock

One of my top picks in the UK value space right now is DS Smith (LSE: SMDS). It’s a leading provider of sustainable packaging solutions that has a strong focus on the e-commerce and consumer goods industries. Generally speaking, packaging stocks tend to do well in an economic recovery. That’s because more economic activity typically translates to higher demand for packaging.

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Momentum

DS Smith appears to have momentum right now. Last month, it said trading continues to “progress well” with the trends and momentum described in its H1 results on 10 December 2020 continuing into H2. It also said group like-for-like corrugated box volume growth had accelerated compared to Q2. It also noted it was seeing “encouraging signs of recovery” from industrial customers. This business momentum should support the share price in the near term.

A value stock with long-term growth potential

However, this isn’t just a short-term play. Having positioned itself as a key supplier to the e-commerce industry (Amazon is one of its major customers), DS Smith looks well-placed to benefit from the long-term growth of online shopping. This is an industry that looks set for powerful growth in the years ahead. I think this growth should provide decent tailwinds for the company.

Valuation and dividend yield

DS Smith’s valuation looks very reasonable, to my mind. Currently, City analysts expect the group to generate earnings per share (EPS) of 29.5p for the year ending 30 April 2022. This means the stock’s forward-looking price-to-earnings (P/E) ratio is about 14.4. I see that valuation as attractive. By contrast, the median forward-looking P/E ratio across the FTSE 100 index is about 16.8.

Meanwhile, the prospective dividend yield here looks attractive too. Currently, analysts expect a payout of 14.4p for next year. That equates to a yield of 3.4% at the current share price. That’s an excellent yield in the current low-interest-rate environment. But I’ll also point out that dividend forecasts aren’t always accurate.

Risks

There are risks to the investment case, of course. If the global economy doesn’t rebound as expected this year, the stock could fall. DS Smith also faces plenty of competition from rivals in the packaging space.

However, I’m comfortable with these risks. Overall, I think the long-term risk/reward proposition here is attractive. With economic activity picking up and analysts upgrading their earnings forecasts for the company, I think it’s a great time to buy this UK value stock.

But what does the head of The Motley Fool’s investing team think?

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When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Frontier Developments Plc made the list?

See the 6 stocks

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 and Amazon. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended DS Smith and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. 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.

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