We recently compiled a list of the 10 Best Undervalued UK Stocks To Buy Now. In this article, we are going to take a look at where Barclays PLC (NYSE:BCS) stands against the other undervalued UK stocks.
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.
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).
An investor looking at a stock chart, representing the bank’s securities dealing.
Barclays PLC (NYSE:BCS)
Number of Hedge Fund Investors: 22
Forward P/E ratio as of August 10: 6.37
Barclays PLC (NYSE:BCS) is a global banking and financial services company with 325 years of history and expertise in banking. The bank operates in over 50 countries and employs approximately 140,000 people worldwide. Barclays PLC (NYSE:BCS) has a market share of 10-15% in most products and operates a vast international network of branches that supports cross-border banking and client operations. Barclays PLC (NYSE:BCS) also has a strong investment banking division that provides a wide range of services such as mergers and acquisitions, trading, and capital raising. This expertise in investment banking sets Barclays PLC (NYSE:BCS) ahead of some of its competitors. As of Q1, the stock was held by 22 hedge funds with stakes amounting to $209.42 million. Marshall Wace LLP is the largest shareholder in the company and has a position worth $53.98 million.
On June 4, Barclays PLC (NYSE:BCS) reported that the recent decline in inflation has positively impacted consumer confidence regarding household finances. Consumer card spending grew by 1% in May alone. Barclays serves around a quarter of UK corporates and over 20 million UK retail customers, making it one of the largest wealth managers in the UK. The bank processes over 40% of the UK’s credit and debit card transactions and ranks top in UK investment banking fees according to Dealogic. In the US, Barclays is the 9th largest issuer in the credit card market and serves 20 million customers.
Over the past 12 months, the stock price has increased by nearly 50%. Revenue is expected to grow by 5.43% this year. The stock’s forward P/E ratio of 6.37 indicates a 42% discount compared to the sector median of 11.08. While Barclays has a total debt of $920.73 billion, it also holds a substantial cash reserve of $883.99 billion. Barclays PLC’s (NYSE:BCS) ongoing cost-cutting and restructuring efforts are expected to result in savings of up to £2 billion by the end of 2026. Additionally, the company projects that it will achieve a return on tangible equity of over 12% by the same year. As part of its new strategy, the company plans to concentrate more on lending to consumers and businesses. Due to these significant initiatives, which position the company for stronger financial performance and growth, it is considered one of the best-undervalued stocks to buy now.
Overall BCS ranks 6th on our list of the best undervalued UK stocks to buy. You can visit 10 Best Undervalued UK Stocks To Buy Now to see the other undervalued UK stocks that are on hedge funds’ radar. While we acknowledge the potential of BCS as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than BCS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.