Right now, many UK stocks are trading at or near 52-week lows. So there are a lot of potential opportunities for those who like value.
Of course, not every stock near a 52-week low is worth buying. With that in mind, here’s a look at two I like, and one I’d avoid.
Down 25% and looking attractive
Let’s start with Johnnie Walker and Tanqueray owner Diageo (LSE: DGE). This is a stock trading at a 52-week low I like (a lot).
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At current levels (25% below their highs), I think Diageo shares are a steal.
Sure, there are a few issues clouding the near-term outlook including economic weakness in China, a legal dispute with Sean Combs, and the cost-of-living crisis (which could force consumers to trade down to cheaper spirits brands).
However, in the medium to long term, I expect this company to continue growing its revenues, earnings, and dividends at a healthy rate.
And the valuation looks attractive right now. At present, Diageo shares trade on a forward-looking P/E ratio of just 18 versus roughly 28 for rival Brown-Forman.
Given this earnings multiple, I will be buying more shares for my portfolio in the coming weeks.
I can’t see them going much below 3,000p.
A very appealing valuation
Another beaten-up stock I’m bullish on is Smith & Nephew (LSE: SN.), the healthcare company specialising in joint replacement technology.
This stock has tanked on the back of concerns that new weight-loss drugs (such as Novo Nordisk’s Wegovy) will lead to a much slimmer global population, which will, in turn, lead to less demand for joint replacements.
I don’t buy into these concerns. For starters, they assume that a large proportion of the population will take these drugs on a continuous basis. I think that’s unlikely.
Secondly, I think the ageing population is likely to offset any demand weakness related to weight-loss drugs. By 2030, one in six people globally will be over 60.
At present, Smith & Nephew shares trade on a forward-looking P/E ratio of under 12 and offer a dividend yield of around 3.4%.
I see a lot of value on offer there and will be buying more shares for my portfolio soon.
Facing long-term headwinds
As for the stock near 52-week lows that I’m not so bullish on, it’s British American Tobacco (LSE: BATS).
Now this stock is cheap right now. Currently, the forward-looking P/E ratio is just 6.6.
There’s also a high yield on offer. With analysts expecting a payout of 239p per share for 2023, the yield stands at about 9.5%.
I just think this stock is going to struggle. Looking ahead, tobacco companies are going to face real headwinds as governments continue to crack down on the industry. Here in the UK, prime minister Rishi Sunak recently proposed a ban on cigarettes for younger generations.
Additionally, tobacco companies may potentially face less interest from investors (especially institutional investors) due to the ever-increasing focus on sustainability/ESG.
So I’ll be leaving this stock alone and focusing on other opportunities.
