Even though the FTSE 100 hit all-time highs yesterday (23 April), it doesn’t mean all UK stocks are flying high right now. The FTSE 250 isn’t even at 52-week highs as I write, with some dividend stocks actually looking very cheap. Here are two I’m thinking about buying that I think are undervalued.
Pivoting the business
I recently wrote about British American Tobacco (LSE:BATS) as a stock that I feel could do well from a value perspective. The stock is down 19% over the past year, with a price-to-earnings ratio of 6.28.
I think it’ll be popular with US investors who feel US stocks are becoming overvalued and are looking to allocate their money to familiar names this side of the pond.
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There’s good reason for thinking about doing this. The business is pushing hard on the pivot to alternatives to traditional combustible tobacco products. This line, known as New Categories, is growing fast. Last year, organic revenue for this area jumped by 21%. It now makes up 16.5% of total group revenue.
In terms of dividend yield, the stock has one of the highest yields in the FTSE 100 right now at 10.2%. The fall in the share price has helped to push this higher. Yet I’m not massively concerned about the risks going forward.
The settlement with Philip Morris International regarding patent infringement litigation isn’t great. More headaches as the tobacco giants slog it out for market share could be seen in the future. But it doesn’t stop me thinking the stock is getting very cheap.
Aiming for more alpha
The other option I like is Apax Global Alpha (LSE:APAX). The firm invests in non-public companies, either buying equity in the businesses or providing debt facilities. The aim is to profit after helping the individual companies to grow and become more efficient.
Down 15% over the past year, the stock looks cheap when I compare the share price to the net asset value (NAV) of the underlying investment holdings. Even though the latest NAV reading was at the end of last year, the share price is at a 37% discount!
Part of this I think is driven by negative sentiment. The private equity sector has endured a wobble over the past year. A lot of this is due to concerns about the impact of high interest rates on businesses. If a company underperforms, it’s much harder to sell to someone else if the firm isn’t listed on the stock exchange.
But I think this is just a blip, especially if interest rates do fall later this summer. Further, even though the dividend per share over the past year is slightly lower than the previous year, the yield is still a generous 8.07%
I’m considering buying both dividend shares shortly and feel income investors should take a look too.
