In this article, we look at the 10 Best Undervalued UK Stocks To Buy Now.
The Economy of the United Kingdom
According to a report by KPMG, the economy of the UK is going through a combination of consumption tailwinds and falling inflation which is expected to support modest positive growth in the country for the remainder of 2024 and in 2025. The United Kingdom’s economy is projected to achieve GDP growth of 0.5% in 2024, and 0.9% in 2025, while inflation is expected to hold steady at 2.6% in both 2024 and 2025. Unemployment rates are also projected to be 4.5% in 2024 and 4.9% in 2025. The interest rates are anticipated to drop towards 3% by the end of 2025 and elections are likely to resolve political uncertainty, which would encourage business. However, geopolitical uncertainty, conflicts, and trade tensions could lead to inflation spikes and sharp shifts in monetary policies. Despite the uncertainty, KPMG’s analysts remain optimistic about the future. Yael Selfin Vice Chair and Chief Economist at KPMG United Kingdom said:
“Global economic prospects are better for 2025, with inflation expected to return towards target and central banks more confident to cut policy rates from the current restrictive levels. The silver lining is a tailwind for big-ticket consumer purchases and business investment. Merger and acquisition activity could also continue to gather steam, as financial conditions ease and dry powder is deployed. However, the uncertainty remains around the political shifts, which could see more insular and protectionist economic policies.”
Investors view the UK market as particularly appealing due to its current valuations, which are similar to those of emerging markets when measured on a forward price-to-earnings basis. The UK equity index stands out for its substantial exposure to the energy sector, which could benefit significantly if the global economy outperforms expectations. Additionally, in times of escalating geopolitical tensions, the energy sector might also see gains, driven by rising prices. The composition of the UK equity market is well-structured, especially in terms of dividend yields and volatility. Compared to European equities, UK stocks are less volatile and offer higher dividend yields, making them an attractive option for investors at this time. Goldman Sachs is also anticipating modest growth in the United Kingdom’s 2025 and 2026 economic growth and forecasts the FTSE 100 Index to rise to 7,900 by the end of 2024. Goldman Sachs said:
“Low valuation, improving global demand and low supply aiding commodities stocks, and continued buybacks all support FTSE 100. We do not expect UKX to underperform as it did in 2023,”
According to Emma Wall, Head of Investment Analysis at Hargreaves Lansdown, the UK offers one of the best value opportunities among developed markets, particularly for those looking for undervalued investments. Despite its high performance in the FTSE 100, it is highlighted as being on a 45% discount compared to the U.S. market. Emma Wall sees the best value opportunity in the UK, citing the significant discount, international revenues, lack of leverage, and expectations of high dividend payouts as key reasons for this analysis.
The UK market presents a unique and compelling opportunity for investors, as the global economy shows signs of improvement and inflation stabilizes, the UK will benefit from economic growth despite some uncertainties, with that in context let’s take a look at the 10 best undervalued UK stocks to buy now.
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Our Methodology
For this article, we used the Finviz screener to screen for UK-based companies that are trading at a forward P/E ratio of under 20 as of August 9. We listed the stocks according to their hedge fund sentiment, which was taken from our database of 920 elite hedge funds as of Q1 of 2024.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Best Undervalued UK Stocks To Buy Now
10. Carnival Corporation & plc (NYSE:CUK)
Number of Hedge Fund Investors: 14
Forward P/E ratio as of August 10: 11.27
Carnival Corporation & plc (NYSE:CUK) is a British-American cruise operator that owns and operates a combined fleet of over 90 vessels across nine cruise line brands including Carnival Cruise Line, Holland America Line, and Princess Cruise. The cruise line industry was valued at $9.2 billion in 2023 and is expected to grow to $25.4 billion by 2033, at a CAGR of 10.6%. Carnival Corporation & plc (NYSE:CUK) is one of the largest and most prominent players in the cruise industry and has over 104,000 employees worldwide. The company is poised to benefit from favorable trends in the global travel and tourism market. As of the first quarter, the stock is held by 14 hedge funds with stakes worth $233.10 million. Aristeia Capital is the largest shareholder and has stakes worth $168.05 million, as of March 31.
On June 25, Carnival Corporation & plc (NYSE:CUK) reported that its Q2 net income increased by nearly $500 million compared to the previous year. The quarter saw a record operating income of $560 million, nearly five times higher than the previous year, driven by record revenues of $5.8 billion. Full-year 2024 net yield guidance has been raised to approximately 10.25% and net income forecast has been increased by about $275 million, due to higher itinerary prices and sustained demand from Americans for cruise holidays. 2024 has been a record year for cruise operators, with booking volumes reaching an all-time high. Looking ahead to 2025, early bookings are even higher in both price and occupancy than those in 2024.
Equity analyst Derren Nathan from Hargreaves Lansdown noted that Carnival Corporation & plc’s (NYSE:CUK) net debt remains high at $27.7 billion, and with the second quarter typically being the strongest for cash generation, significant debt reduction may not occur this year. Carnival prepaid $1.6 billion of debt during the second quarter. Cruise costs per available lower berth day rose by 4% during the second quarter. Carnival now anticipates a 2024 adjusted profit per share of about $1.18, up from its earlier forecast of 98 cents. Commenting on the company’s growth Carnival Corporation & plc’s (NYSE:CUK) CEO Josh Weinstein said:
“The company continues to experience strong bookings momentum driven by record booking volumes for 2025 sailings. While still early, the cumulative advanced booked position for full year 2025 is even higher than 2024 in both price (in constant currency) and occupancy.”
Carnival Corporation & plc (NYSE:CUK) is enhancing its fleet, with eight new ships slated for delivery across its brands by 2025. The stock has a forward PE ratio of 11.27 as of August 10, reflecting a 25.36% discount compared to its peers. Analysts expect the company’s earnings to grow by 100% this year. CUK is therefore one of the most undervalued UK stocks to buy now.
9. Torm Plc (NASDAQ:TRMD)
Number of Hedge Fund Investors: 16
Forward P/E ratio as of August 10: 4.95
Torm Plc (NASDAQ:TRMD) is a global shipping company that provides transportation for refined oil products, such as gasoline, diesel, and jet fuel. The crude oil carrier market is valued at $263.73 billion as of 2024 and is expected to reach $351.7 billion by 2032 growing at a CAGR of 3.66%. Torm Plc (NASDAQ:TRMD) is one of the major players in the industry and operates a fleet of around 90 modern vessels which are chartered by oil companies, refiners, and trading firms.
Like other shipping companies, Torm Plc’s (NASDAQ:TRMD) operations have been significantly disrupted by Houthi attacks in the Gulf of Aden and the Red Sea. Earlier in January, Torm Plc (NASDAQ:TRMD) halted fleet sailings in the region and decided to divert vessel shipping routes which has impacted operational costs and delivery times. Shipping companies such as Torm Plc (NASDAQ:TRMD) are offsetting the increased costs by raising freight rates and adding extra surcharges along with chartering additional vessels to meet demand.
However, Torm Plc (NASDAQ:TRMD) is well-positioned for strong performance in the near term and is a compelling buy for investors seeking undervalued stocks, due to its strong financials and attractive valuation. The company’s current assets are 3.6 times its current liabilities, indicating strong liquidity and the ability to meet short-term obligations. Torm Plc (NASDAQ:TRMD) is cheaper than its industry peers, the stock is trading at 4.95 times this year’s earnings estimate, a 57% discount to its sector. Analysts expect earnings to grow by 15% this year. Kepler Capital maintained a Buy rating on Torm Plc (NASDAQ:TRMD) due to its robust earnings, and operational metrics, and favorable demand trends for tanker services. Based on the consensus of other analysts, the stock has a Buy rating and an average price target of $44.70, which represents an upside of 13.23% from current levels. As of the first quarter, the stock is held by 16 hedge funds with stakes worth $1.80 billion. Oaktree Capital Management is the largest stakeholder in the company and has a position worth $1.70 billion, as of March 31.
8. British American Tobacco p.l.c. (NYSE:BTI)
Number of Hedge Fund Investors: 19
Forward P/E ratio as of August 10: 7.61
British American Tobacco p.l.c. (NYSE:BTI) is one of the largest tobacco companies in the world that manufactures and sells cigarettes, electronic cigarettes, and other products such as nicotine pouches in over 170+ countries worldwide. In 2023, British American Tobacco p.l.c. (NYSE:BTI) added about 3 million new customers and its nicotine pouches Vuse and Velo, played a significant role in the overall performance of the company as revenues from these products increased by 18% and 21% year over year, respectively.
British American Tobacco p.l.c. (NYSE:BTI) has a competitive advantage to drive portfolio growth and transformation within the wider tobacco industry by offering its vapor, heated tobacco, and modern oral tobacco products. The company aims to become a leader in smokeless nicotine alternatives and plans to generate 50% of its revenue from non-combustible products by 2035.
On July 18, the U.S. Food and Drug Administration (FDA) approved the marketing of various products under the Vuse brand and granted Marketing Granted Orders (MGOs) for the Vuse Alto device and its Golden Tobacco and Rich Tobacco flavor pods at nicotine levels of 1.8%, 2.4%, and 5%. British American Tobacco p.l.c. (NYSE:BTI) views these authorizations as a significant step in its multi-category approach to providing reduced-risk products, aligning with its goal of delivering “A Better Tomorrow.” The approvals represent the largest portfolio of vapor product authorizations given to any organization in the U.S.
Should you invest in British American Tobacco p.l.c. (NYSE:BTI)? The stock has a forward P/E ratio of 7.61, which is a 55% discount to the sector median of 17.19. For the year 2023, the company reported a revenue of $33.92 billion, a 3.1% increase in organic revenue compared to the previous year. Profits from operations were also up 3.1%. Revenue is expected to grow by almost 2% this year to $34.57 billion and net earnings and earnings per share are expected to grow by 4.86% by this year.
As of the first quarter, the stock is held by 19 hedge funds with stakes worth $588.68 million. Orbis Investment Management is the largest stakeholder in the company and has a position worth $385.39 million, as of March 31. Industry analysts have a consensus on the stock’s Buy rating, setting an average share price target at $37.66, which represents a 16% upside potential from its current level.