When trying to put a spare £500 to work, I think that buying undervalued UK stocks is the way forward. I could leave the money in my bank account, of course, but high inflation would erode its value. Obviously there’s a risk to my capital when I invest it, but I think the potential long-term rewards make it a risk worth taking. Given the short-term fall in the FTSE 100, here are some stocks that are on my radar.
Aiming for a tech rebound
The first pick that I’m keen to buy is Scottish Mortgage Investment Trust (LSE:SMT). The UK stock dropped by 6.6% on Friday alone, meaning it has fallen by 39% over the past year.
The business invests in other stocks. So when I buy shares in the company, I’m getting exposure to all of the stocks that are owned in the fund. The most recent update shows that top holdings include Moderna, Tesla and Amazon, with the bulk of the holdings being from the US.
It’s easy to put the poor performance recently down to the falling Nasdaq and big tech names. But if I’m after good value, I think this is the place to look. For example, Q1 results for Amazon missed expectations but this was partly down to a one-off charge relating to the value of exposure to Rivian. If I look at net sales, they increased by 7% to a whopping $116.4bn. Overall, I think that Amazon will continue to dominate as a top tech stock. As Scottish Mortgage has shares in Amazon, this could indirectly help its share price to recover later this year.
As a risk, I do think that SMT has too much exposure to the US in general. Given the high inflation and concerns of a looming recession, I’d want to see more of a spread of companies owned around the world.
UK banking stocks benefiting from higher rates
Another UK stock that I think is undervalued right now is Barclays (LSE:BARC). The share price took a hit again on Friday, falling over 3%. In the last year, it’s down 10%.
I’m looking to invest £500 right now in the bank based mainly on projected interest rate hikes for the rest of the year. It has benefitted from the fact that interest rates have jumped from 0.1% a year back to 1% now. This helps profitability as it can make a large interest margin between the rate charged on loans versus the rate paid on deposits.
The Bank of England is expected to raise the base rate again on Thursday by 0.25%. In fact, some analysts are expecting another three hikes from the committee this year. If we get to the end of the summer with the rate at 1.75%, Barclays should significantly increase net interest revenue. This should help to drive the share price higher, erasing the year-to-date losses in the price being the first target in my eyes.
One point I must note is that if the UK heads into a recession soon, Barclays shares could struggle. The group has a large retail bank, meaning that this UK stock could feel the crunch from higher loan defaults and a lack of consumer spending.
