UK stocks near 52-week lows: 2 I’d buy and one I’d avoid

Edward Sheldon has been scanning the market for stocks trading near their 52-week lows and he’s identified a couple of interesting opportunities.

| 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.

Chalkboard representation of risk versus reward on a pair of scales

Image source: Getty Images

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.

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).

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.

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 has positions in Diageo Plc and Smith & Nephew Plc. The Motley Fool UK has recommended British American Tobacco P.l.c., Diageo Plc, and Smith & Nephew Plc. 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 Value Shares

Investing Articles

Should I buy dirt-cheap BT shares after the recent pullback?

BT shares were on the up but now they're sliding again after the board trimmed full-year guidance. Now Harvey Jones…

Read more »

Investing Articles

Up 28%, can the easyJet share price keep rising?

The easyJet share price has gained altitude over one year but plunged over five. Is now an attractive time for…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

7% yield and a cheap valuation! Is this one of the best shares to buy this month?

Christopher Ruane has been looking for cheap shares to buy. This one has a 7% dividend yield, so is it…

Read more »

Investing Articles

The latest FTSE dip has handed me a brilliant opportunity to buy cheap shares!

Harvey Jones is on a mission to take advantage of the recent FTSE 100 dip by going shopping for cheap…

Read more »

Investing Articles

Will the Lloyds share price drop to 50p in 2025 and should I buy the stock if it does?

The Lloyds share price has fallen 12% in six weeks, making the stock cheaper on a price-to-book basis than NatWest.…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

After falling 87% in 45 months, could Dr Martens be a winning value stock?

Ahead of its half-year results due to be released later this month, our writer considers whether this FTSE 250 icon…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

2 UK shares to consider following the US election result

UK shares are inevitably affected by changes across the pond as many FTSE companies do business in the US. Our…

Read more »

Investing Articles

2 UK shares for value investors to consider buying

In the UK, shares in a FTSE 100 housebuilder and a FTSE 250 boot business stand out to Stephen Wright…

Read more »