2 stock market bargains to buy today

This Fool’s eyeing up these stock market bargains for their income and growth potential, as well as their low valuations.

| 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.

I’m always on the lookout for stock market bargains to add to my portfolio. And two companies have recently attracted my attention, one of which I’ve already bought, and one I’m planning to buy. 

Stock market bargains on offer

The first stock is the insurance group Direct Line (LSE: DLG). This enterprise reported a strong trading performance in 2020, as a lower level of accidents helped offset falling sales. As a result, the company’s overall profitability increased as its loss ratio dropped. 

But despite Direct Line’s impressive performance last year, the market seems to be avoiding the business. I’m not sure why. The company expects to own a healthy profit margin again this year. What’s more, it’s returning much of its income to shareholders with dividends and share buybacks. 

To give an example of the company’s cash return potential, City analysts reckon the business will distribute 24.3p per share this year in dividends. That equates to a dividend yield of 8.4%

Of course, this is just a projection at this stage. However, I think it clearly shows the company’s income potential. 

Those of the reasons why I believe this is one of the best stock market bargains available to buy today. I already own Direct Line in my portfolio and will buy more if the shares continue to decline in value. 

Having said all of the above, the UK car insurance industry is incredibly competitive. More often than not, insurers fail to own a return on investment. Direct Line has avoided this fate, so far, but there’s no guarantee it will forever. 

Changing of the guard

I think GlaxoSmithKline (LSE: GSK) also qualifies as a stock market bargain today. It’s clear to me why investors have been avoiding the business. It’s been a terrible investment. Over the past 21 years, excluding dividends, the stock has returned -26%. 

Still, I think there’s a chance this could be about to change. Management has recently laid out new growth targets. And to help the company accomplish its aims, the group is planning to spin off its consumer healthcare division. This should produce a more focused pharmaceutical business. 

I’m sure there’s no guarantee growth will return after these changes, but I’m encouraged by management’s recent actions. The involvement of activist hedge fund Elliott Management has also helped drive change. 

As well as these initiatives, the stock looks cheap. It’s trading at a forward price-to-earnings (P/E) multiple of 13.8. Glaxo’s large US peers command multiples of 20 or more. 

Therefore, I reckon the combination of the company’s low valuation and its growth objectives suggests now’s the time to buy. That’s why I’d add GSK to my portfolio of stock market bargains, even though there’s a high chance the group may continue to struggle in the years ahead. 

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.

Rupert Hargreaves owns shares of Direct Line Insurance. The Motley Fool UK has recommended GlaxoSmithKline. 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

Investing Articles

Could this be the FTSE 100’s best bargain for 2025?

The FTSE 100 is full of cheap stocks but there’s one in particular that our writer believes has the potential…

Read more »

Investing Articles

No Santa rally? As the UK stock market plunges 3%, I’m hunting for bargains

Global stock markets are in turmoil as Christmas approaches but our writer is keen to grab some bargains while prices…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

BP share price to surge by 70% in 12 months!? How realistic is that forecast?

Brand new analyst forecasts predict that the BP share price could rise considerably next year! Should investors consider buying this…

Read more »

Investing Articles

BT share price to double in 2025!? Here are the most up-to-date forecasts

The BT share price is up more than 40% over the last eight months with some analysts predicting it could…

Read more »

Investing Articles

Rolls-Royce share price to hit 850p!? Here are the latest expert projections

Analysts predict the Rolls-Royce share price could surge by another 50% in the next 12 months as free cash flow…

Read more »

Investing Articles

Will NatWest shares beat the FTSE 100 again in 2025? Here’s what the charts say

NatWest shares have left rivals Lloyds and Barclays in the dust in 2024. Stephen Wright looks at whether the stock's…

Read more »

Man putting his card into an ATM machine while his son sits in a stroller beside him.
Investing Articles

Could the Lloyds share price crash in 2025?

Lloyds is facing a financial scandal potentially landing the bank with a massive customer compensation bill that could send its…

Read more »

British union jack flag and Parliament house at city of Westminster in the background
Investing Articles

Which UK shares could be takeover targets in 2025?

UK shares have done well this year, but a lot of the big returns have come from companies being acquired.…

Read more »