5 undervalued UK stocks to consider when transitioning from the monarchy

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Summary

  • Queen Elizabeth II died Thursday at the age of 96.
  • Stock indices rose in expectation of a new sovereign.
  • These FTSE 100 stocks are undervalued and have good trading predictability.

Following the death of Britain’s longest reigning monarch, Queen Elizabeth II, on Thursday, UK stock indices rose on Friday ahead of the transition to King Charles III as sovereign.

The FTSE 100, the London Stock Exchange’s benchmark index, gained 1.45% on Friday to close at 7,367.21.

Additionally, most individual sectors posted gains for the day.

As the UK enters a new era of leadership, investors can find value opportunities among UK companies with 10-year earnings per share growth rates of at least 6% and are undervalued according to the GF Value Line
VALUE
, which is based on historical ratios, past financial performance and analysts’ future earnings projections. Additionally, these companies have price-to-earnings ratios below 20 and predictability rankings of at least two out of five stars.

The All-in-one sievea Premium GuruFocus feature, found that FTSE 100 companies that met these criteria as of September 9 included Ashtead Group PLC (LSE: AHT, Financial), Schroders PLC (LSE: DTS, Financial), Mondi PLC (LSE: MNDI, Financial), JD Sports Mode PLC (LSE: JD., Financial) and API DCC (LSE: CDC, Financial).

Ashtead Group

Ashtead Group (LSE: AHT, Financial) has a market cap of 18.52 billion pounds ($21.45 billion); its shares closed at 45.05 pounds on Thursday with a price-to-earnings ratio of 18.07, a price-to-book ratio of 4.21 and a price-to-sales ratio of 2.90.

The London-based company runs a construction and industrial equipment rental business. Under the Sunbelt Rentals brand, it operates in the United States, United Kingdom and Canada.

The GF value line suggests that the stock is currently slightly undervalued.

GuruFocus rated Ashtead’s financial strength at 4 out of 10. Although the company has issued new long-term debt over the past three years, it is at a manageable level due to adequate interest coverage. The Altman Z-Score of 2.63 indicates that the company is under some pressure, but value is created as it grows since the return on invested capital eclipses the weighted average cost of capital.

The company’s profitability fared better, earning a 9 out of 10 rating. Although operating margin was down, returns on equity, assets and capital outperformed the majority of competitors. Ashtead also has a moderate Piotroski F-Score of 6 out of 9, meaning conditions are typical of a stable business. Steady profit and revenue growth also contributed to a four-star predictability ranking. According to research by GuruFocus, companies in this ranking have an average return of 9.8% per year over a 10-year period.

Among the gurus invested in Ashtead, Bestinfond (Professions, Wallet) holds the largest position with 0.10% of its shares outstanding. The Invesco EQV European Equity Fund (Professions, Wallet) and iShares MSCI ACWI
ACWI

CWI
ex. The US ETF also owns the stock.

Schröders

Schröders (LSE: DTS, Financial) has a market capitalization of £7.24 billion; its shares closed at 26.42 pounds on Thursday with a price-to-earnings ratio of 13.08, a price-to-book ratio of 1.77 and a price-to-sales ratio of 2.50.

Founded in 1804, the British asset management firm has $939.20 billion in assets under management.

According to the GF Value Line, the stock is currently slightly undervalued.

Schroders’ financial strength was rated 4 out of 10 by GuruFocus. Despite a comfortable level of interest coverage, the low Altman Z-Score of 0.96 warns that the company could be at risk of bankruptcy. Moreover, the WACC eclipses the ROIC, suggesting that it struggles to create value.

The company’s profitability fared better with a rating of 7 out of 10. Although the operating margin is down, its returns are more than half those of its industry peers. Schroders also has a moderate Piotroski F-Score of 6, while steady profit and revenue growth has contributed to a three-star predictability ranking. Data from GuruFocus shows that companies in this ranking have an average return of 8.2% per year.

With a 3.66% stake, David Herro (Professions, Wallet) is the company’s largest shareholder guru. The iShares MSCI ACWI ex. US ETF also holds a position in Schroders.

Monday

Monday (LSE: MNDI, Financial) has a market capitalization of £7.02 billion; its shares closed at 14.46 pounds on Thursday with a price-to-earnings ratio of 6.43, a price-to-book ratio of 1.42 and a price-to-sales ratio of 0.91.

Based in Weybridge, England, the company manufactures packaging and paper products.

Based on the GF value line, the stock appears to be slightly undervalued.

GuruFocus rated Mondi’s financial strength at 6 out of 10. Although the company has issued new long-term debt in recent years, it is at a manageable level due to sufficient interest coverage. Additionally, the Altman Z-Score of 3.24 indicates he is in good standing. The ROIC also exceeds the WACC, so value creation occurs.

The company’s profitability was rated 8 out of 10. While operating margin is down, returns are outperforming competitors. Mondi also has a high Piotroski F-Score of 7, indicating that conditions are sound, and steady earnings and revenue growth has resulted in a 2.5-star predictability rating. GuruFocus found companies with this rank yield, on average, 7.3% per year.

Bernard Horn (Professions, Wallet) is Mondi’s largest shareholder guru with 0.05% of shares outstanding. It is also owned by iShares MSCI ACWI ex. American ETFs.

JD Sports Fashion

JD Sports Mode (LSE: JD., Financial) has a market capitalization of £6.52 billion; its shares closed at 1.26 pounds on Thursday with a price-to-earnings ratio of 17.78, a price-to-book ratio of 3.39 and a price-to-sales ratio of 0.75.

Better known as JD Sports or JD, the British company is a sports fashion retailer that sells international brands like Nike.
NKE
(NKE, Financial) and Adidas (XTER: ANNOUNCEMENTS, Financial) as well as its own brands, including McKenzie, Carbrini, Supply & Demand and The Duffer of St. George.

The GF value line suggests that the stock is currently significantly undervalued.

JD Sports’ financial strength was rated 6 out of 10 by GuruFocus thanks to adequate interest coverage. The Altman Z-Score of 2.78, however, indicates that the company is under some pressure as assets are accumulating at a faster rate than revenues are growing. The ROIC also exceeds the WACC, which creates value.

The company’s profitability received a perfect 10 out of 10, thanks to an expanding operating margin, returns that outperform the majority of industry peers and a high Piotroski F-Score of 8. Steady earnings and revenue growth gave JD a 4.5-star predictability ranking. . According to GuruFocus, companies in this ranking have an average annual return of 10.6%.

The iShares MSCI ACWI ex. US ETF is currently the only guru with a position in the stock.

CDC

CDC (LSE: CDC, Financial) has a market capitalization of £4.73 billion; its shares closed at 47.90 pounds on Thursday with a price-to-earnings ratio of 15.13, a price-to-book ratio of 1.62 and a price-to-sales ratio of 0.27.

The Irish company offers international sales, marketing and support services. It operates through three divisions: energy, healthcare and technology.

According to the GF Value Line, the stock is currently significantly undervalued.

GuruFocus rated CDC’s financial strength at 6 out of 10. Although the company has issued new long-term debt in recent years, sufficient interest coverage means it is manageable. The Altman Z-Score of 2.91, however, indicates that the company is under some pressure, as assets are accumulating faster than revenues are growing. However, value is created as ROIC outperforms WACC.

The company’s profitability also fared well with a score of 8 out of 10. In addition to the operating margin expansion, CDC’s returns outpace more than half those of its competitors. It also has a moderate Piotroski F-Score of 5, while steady earnings and revenue growth has contributed to a predictability ranking of 4.5 stars.

Invesco has the largest stake in DCC with 0.46% of its shares outstanding. It is also owned by iShares MSCI ACWI ex. American ETFs.

Other potential choices

Additional stocks that qualified for review were Hargreaves Lansdown PLC (LSE: HL., Financial) and Howden Joinery Group PLC (LSE: HWDN, Financial).

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