The FTSE 350 and AIM markets are packed full of cheap shares. The truth is, there has been incredible innovation and share price appreciation happening in the US. This, coupled with political and economic issues in the UK, has drawn capital away from British companies and into American listed ones. It’s unlikely, however, that this trend will last forever. For example, I’ve invested heavily in US stocks, myself. But with valuations getting frothy stateside, I’m increasingly looking for bargains at home.
Travel sector winner
Jet2 plc (LSE:JET2) stands out as a potential gem in the FTSE AIM. The company’s financial position is remarkably strong. Its net cash is expected to grow from £1.7bn to £2.8bn in coming years. This robust financial base provides a degree of protection against volatility. It also supports the company’s expansion plans and fleet renewal. It has £5bn worth of aircraft on order to be delivered over the next six years.
Given this net cash position, the company’s valuation metrics are particularly attractive. Its forward enterprise value-to-EBITDA (earnings before interest, tax, depreciation, and amortisation) ratio is projected to decrease from 2.01 in 2024 to just 0.53 by 2027. That’s significantly lower than industry peers like low-cost easyJet, which trades at around 4.3 times. What’s more, even when we don’t factor in the cash position, Jet2 trades with a price-to-earnings-to-growth (PEG) ratio of 0.77 because of its medium-term growth rate of 9.6%. This is a clear sign that it is undervalued.
However, investors should bear in mind that changes in fuel prices can have an outsized impact on earnings. Fuel costs typically represent around 30%-40% of operating costs. What’s more, the fleet is a little older than some peers at 13.9 years, hence a slightly greater need to procure new planes. easyJet’s average fleet age is just 10 years.
Nonetheless, my optimism is also reflected in the average share price target, which is 38% higher than the share price today.
Winning on social media and in retail
If you spend too much time on social media, you’ll have noticed that Currys (LSE:CURY) is doing rather well with some impressive engagement statistics. What’s more, the business is doing really well too.
The company’s recent performance has been encouraging, with a rise in like-for-like sales during the crucial Christmas period and improved gross margins due to disciplined inventory management. This has been reflected in a surging share price.
But the rally probably isn’t over. Analysts have upped their share price targets and the average now sits at 119.5p, about 31% higher than the current share price. This comes off the back of rising profit guidance from management and some exceptionally attractive earnings multiples. In fact, the forward PEG ratio sits at just 0.4, indicating a deep value opportunity.
However, investors should be mindful of the risks associated with the consumer discretionary sector, particularly given the uncertain economic environment. Any deterioration in consumer sentiment or unexpected upward shifts in interest rates could impact Currys’ sales and profitability.
My verdict? These are two stocks I’m looking very closely at buying.
