As the UK gears up for a general election, savvy investors are scrutinising how potential policy shifts might reshape the economic landscape. While political uncertainty often breeds volatility, it can also unveil intriguing investment opportunities. I’ve got three FTSE stocks on my radar, not just for their political sensitivity, but for their compelling financials and growth prospects.
Barratt Developments
Firstly, Barratt Developments (LSE:BDEV), one of the UK’s largest housebuilders. With housing consistently topping the political agenda, the company’s performance could swing with policy changes.
With a price-to-earnings (P/E) ratio of 8.2 times and a generous dividend yield of 7.8%, the company looks interesting. More intriguingly, a discounted cash flow calculation (DCF) analysis suggests a fair value of £5.60 per share, compared to its current price of around £4.75.
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Furthermore, a strong balance sheet, featuring £1.1bn in cash and a low debt-to-equity ratio of 0.05, provides a strong buffer. With a price-to-book (P/B) ratio of 0.8, many investors are will see the shares currently in bargain territory. I have my concerns about the dividend not being covered by earnings, and declining profit margins, though.
The political wildcard? I’m watching for manifesto pledges on planning reform and affordable housing initiatives.
SSE
As a major player in the UK’s energy transition, SSE’s (LSE:SSE) strategic pivot towards renewable energy aligns with cross-party commitments to achieving net-zero emissions. This positioning could prove advantageous regardless of the election outcome.
Financially, the firm presents an intriguing profile. Its P/E ratio of 16.5 times is balanced by a healthy dividend yield of 5.5%. A DCF model estimates a fair value of £19.20 per share, suggesting some further growth from its current trading price of around £18.30.
What’s particularly noteworthy is ambitious capital expenditure plans, with £2.5bn earmarked annually for renewable energy projects. This significant investment underscores a commitment to long-term growth in the sector. However, the company has a lot of debt, and the regulated nature of the sector can limit investor returns.
I’ll be watching out for proposed changes to energy price caps and renewable energy incentives.
Ocado
Ocado (LSE:OCDO) represents a bet on the future of retail and technology. While currently unprofitable, its innovative approach could position it well in a digitally-driven economy.
With a price-to-sales (P/S) ratio of 1.2, the market is already pricing in significant growth expectations. A 10-year DCF model, factoring in ambitious growth projections and margin improvements, suggests a fair value of £7.80 per share, compared to its current price of around £3.10.
The gross profit margin of 33.4% hints at potential profitability as the company scales. Moreover, its substantial R&D spending (£84m in FY2023) underscores a commitment to maintaining a technological edge. However, the shares have seen some major volatility in recent times, and if management fail to execute, investors could be in for a bumpy ride.
Policies affecting digital infrastructure investment and the gig economy could significantly influence growth trajectory.
What’s next?
As the election unfolds, investors will be watching not just the polls, but also how companies adapt to the evolving political and economic landscape. These three FTSE companies offer diverse exposure to key sectors of the UK economy. However, it’s crucial to remember that political events can rapidly alter the business landscape, potentially rendering current projections obsolete. I’ll be keeping all three on my watchlist for now.
