The goal of most skilled traders is to purchase undervalued stocks. Since the economic implications of Russia’s war with Ukraine are affecting a lot of worries on stock markets. This issue has grown in importance as a result of high rising prices and a sharp slowdown in growth as opposed to 2021 peaks.
In this underlying market situation, it may be reasonable for traders to seek out undervalued stocks for capital gains. It’s critical to remember that determining what stocks to invest in UK and whether or not a company is an undervalued stock are a highly subjective process.
To help you, we’ve included a list of the ten best companies in this Best Undervalued stocks to buy now UK in 2022 guide that is particularly well-positioned to develop major gains for their stockholders in the future.
What Is An Undervalued Stock?
Stocks that are undervalued have a market price that is less than their inherent worth. The undervaluation could be due to a variety of factors, including sector-specific, social-economic, or market-wide slowdown.
For example, Company A’s stock is currently trading at £1000 on the market, but its intrinsic value is approximated to be £2000. As a result of the volatile market conditions, Company A’s stocks are priced lower than their potential.
Factors to consider choosing Undervalued Stocks
So now that you know what an undervalued stock is, we’ll go over the factors to consider when selecting one. It is important that you should never buy shares and invest in company just because someone else thinks it’s undervalued. In-fact, you must conduct extensive research and, in the end, make your own investment decisions.
Although these are the factors that value investors should consider when buying an undervalued stock, any definitive information on these factors can be found by following the steps below:
Price-to-earnings ratio (P/E ratio)
It’s the percentage of a firm’s share price to its earnings from the fraction of its capital generated through share capital. It enables value investors to decide whether a stock is currently underperforming but will turn profitable in the near future. As a result, it is an important metric to consider when trading undervalued stocks.
While maintaining the share price steady, the lesser the P/E ratio, the greater the Earnings per Share (EPS). In the case of continuous EPS, a greater P/E ratio means a greater share price, and conversely.
Price-to-book-ratio (P/B ratio)
It is the percentage of a firm’s book value to the value for every unit share. It provides a unique assessment of a company’s financial position and whether it has the ability to generate profits in the future.
Undervalued stocks are those whose market value is less than their book value, with the exception of companies that are experiencing financial difficulties.
Net cash flow
After all required cash flows have been subtracted, it is the cash flow that remains. Both operational and capital expenses are included in these cash outflows.
It is a key factor in determining whether or not a firm’s stock is undervalued. If a firm has gross or free cash flow, it has the financial opportunity to invest in R&D, pay the previous debt, introduce new products, and pay dividends on time to shareholders, among other things.
There are a few other aspects of benchmarks that are used to determine whether a company’s stock is undervalued or not including:
- A company’s earnings history.
- A business is not involved in any financial deception.
- The firm’s merchandise and whether or not they have the potential to be profitable and sustainable in the future.
- The credit rating of a company indicates how reliant it is on debt.
- During the previous downturn, a firm’s profit or loss.
Value investors look at these aspects, as well as other related factors and indicators, to see if a firm’s stock is undervalued.
10 Most Undervalued UK Stocks To Invest In 2022
Before we get into the details of the best-undervalued stocks to buy in 2022, here’s a quick list of the best UK companies to invest in that can pay off lucratively:
- Cineworld Group plc (LON: CINE)
- Sportech PLC (LON: SPO)
- Imperial Brands PLC (LON: IMB)
- ITV plc (LON: ITV)
- Taylor Wimpey plc (LON: TW)
- BP plc (LON: BP)
- Legal & General Group Plc (LON: LGEN)
- Redrow plc (LON: RDW)
- British American Tobacco (LON: BATS)
- Aviva plc (LON: AV)
Best Undervalued UK Stocks Reviewed
1. Cineworld Group plc (LON: CINE)
Cineworld Group plc is one of the biggest cinema firms in the United Kingdom, with nearly 9,500 screens spread across 800 locations. The United States accounts for 68 percent of the company’s revenue, while the United Kingdom and Ireland account for 18 percent. It comes in first place on our list of the best undervalued shares in UK to buy right now.
Berenberg increased its price target for Cineworld Group plc to GBX 85 in July, while keeping its Equal Weight rating on the stock. On August 12, the company released its 2021 interim results. Cineworld Group plc earned $293 million in revenue last year, and it plans to open over ten new locations in the United States, Europe, and the United Kingdom in 2020.
The stock has returned 136.7 percent to shareholders in the last year, after hitting an all-time low of GBX 26.27 in March 2021.
Cineworld stocks had a trading volume of £9.43 million with a market capitalization of £490 million at the time of composing this article. Its 52-week stock price high is 124.85 GBX, implying a 249 percent upside objective at the current price of 35.77 GBX.
2. Sportech PLC (LON: SPO)
On our guide to the best undervalued UK stocks 2022, Sportech PLC comes in second. A British betting and entertainment corporation is best recognized for its broadly used broadcast platforms, with its tech solutions being used across Europe, North America, and South America. In its interim 2021 report, Sportech PLC revealed a 16 percent increase in its digital platform compared to the same period 2020.
Sportech PLC has returned 39.3 percent to shareholders at the beginning of 2021, with the stock up 103.3 percent in 2020. The company generated revenues of £13.4 million in the second quarter of 2021, up from £7.8 million in the same period of 2020. The company’s service revenue accounted for £1.9 million of its total revenue. The trailing-twelve-month P/E ratio for Sportech PLC is 2.94.
Sportech stocks had a trading volume of £145.80k with a market capitalization of £33.13 million at the time of composing this article. Its 52-week stock price high is 41.80 GBX, implying a 26 percent upside objective at the current price of 33.13 GBX.
3. Imperial Brands PLC (LON: IMB)
Imperial Brands PLC is a British large corporate tobacco company that ranks third on our list of the best undervalued stocks to buy right now.
The firm posted revenues of £15.57 billion in the first quarter of 2021, up 6.1 percent year over year. The stock has returned 16.37 percent to shareholders over the last year. The company pays a 0.09 percent annual dividend of GBX 1.38 per share which represents it as one of the best UK stocks.
JPMorgan’s Jared Dinges lifted Imperial Brands PLC’s price objective to GBP 2,100 while preserving an Overweight buy rating to the company. The trailing-twelve-month P/E ratio for Imperial Brands PLC is 5.28.
Imperial Brands PLC stocks had a trading volume of £2.41 million with a market capitalization of £19.04 million at the time of composing this article. Its 52-week stock price high is 1822 GBX, implying an 18 percent upside objective at the current price of 1542.50 GBX.
4. ITV plc (LON: ITV)
ITV plc, a British large global media corporation, is one of the best UK companies to invest in right now. This firm owns 13 of the 15 regional television licenses in the UK, is one of the country’s largest media companies. The company currently pays a 3.96 percent annual dividend of GBX 5.40 per share. The trailing-twelve-month P/E ratio for ITV plc is 8.94.
Due to the Covid-related industry quashing, the company’s shares plummeted in April 2020, reaching GBX 54.42. The stock, on the other hand, returned 36.90 percent in 2021, reaching 134.15 GBX. Morgan Stanley recently increased its target price on ITV plc to GBP 190, while maintaining an Overweight rating.
ITV plc stocks had a trading volume of £19.11 million with a market capitalization of £3.42 billion at the time of composing this article. Its 52-week stock price high is 134.15 GBX, implying a 58 percent upside objective at the current price of 84.86 GBX.
5. Taylor Wimpey plc (LON: TW)
Taylor Wimpey plc, based in Blackpool, constructs approximately 15,000 homes in the United Kingdom each year. This stock is one of the best stocks to invest in 2022 UK.
Taylor Wimpey plc had a profitable year in 2020, generating £2.79 billion in revenue. Furthermore, after reaching an all-time low of GBX 125.52 in March 2021, the stock has gained 24.9 percent in the last year and is now trading at GBX 135.25. Taylor Wimpey plc pays a GBX 8 per share annual dividend, yielding 6.41 percent.
Taylor Wimpey plc’s price target was recently raised by Barclays to GBX 205, while the stock’s Overweight rating was maintained. The trailing-twelve-month PE ratio for Taylor Wimpey is 8.79.
Taylor Wimpey plc stocks had a trading volume of £20.29 million with a market capitalization of £4.93 billion at the time of composing this article. Its 52-week stock price high is 193.80 GBX, implying a 43 percent upside objective at the current price of 135.25 GBX.
6. BP plc (LON: BP)
Before we get to that, let’s take a look at how the coronavirus pandemic affected the BP plc’s stock price. You would have paid just over 500 GBX to buy BP share at the beginning of 2020.
Then, in March, as global travel came to a halt, BP’s stock plummeted. In fact, the stock dropped to a 52-week low of 222 GBX. In less than a month, BP’s stock has lost just over 55 percent of its value. The sharp drop in global oil prices coincided perfectly with this decline.
In April 2021, the Brent Crude Index fell to $19 per barrel. This was extremely damaging to BP, which is said to have a break-even price of $35 per barrel. The Brent Crude Index, on the other hand, is currently on an upward trend. This is over $111 per barrel at the time of writing in March, up 189 percent from its lows in 2020.
As a result, BP’s stock is slowly but steadily recovering. BP shares are currently trading at 361.95 GBX at the time of writing. When compared to its 52-week lows of 275.85 GBX, this represents a massive 40% increase. However, it’s possible that the stocks still have a long way to go. If this is the case, BP can be one of the best companies to invest in UK right now.
BP plc stocks had a trading volume of £88.49 million with a market capitalization of £72.30 billion at the time of composing this article. Its 52-week stock price high is 419.15 GBX, implying a 15 percent upside objective at the current price of 361.95 GBX.
7. Legal & General Group Plc (LON: LGEN)
Legal & General Group Plc is a multinational financial services company based in the United Kingdom that provides investment management, pension, and life insurance services to its customers. On our list of the best undervalued stocks to buy right now, the company ranks seventh.
In the first half of 2021, Legal & General Group Plc made a profit of £7.1 million, with finance revenue of £33.6 million, up 2 percent from the same period in 2020.
Legal & General Group Plc pays a $0.65 per share annual dividend, yielding 6.90 percent. Citigroup asserted its Buy rating on the stock in September 2021, with a £300 target price. The trailing-twelve-month P/E ratio of the Legal & General Group Plc is 7.93.
Legal & General Group Plc stocks had a trading volume of £18.83 million with a market capitalization of £15.53 billion at the time of composing this article. Its 52-week stock price high is 309.90 GBX, implying a 19 percent upside objective at the current price of 259.24 GBX.
8. Redrow plc (LON: RDW)
Redrow plc, one of the UK’s largest real estate developers, pays a 4.48 percent annual dividend of GBX 0.06 per share. Berenberg raised its price target on Redrow plc to GBX 820 in August 2021, with a Buy rating, citing the UK government’s declaration to endorse the housing market.
After hitting the bottom of GBX 500 due to the disease outbreak worldwide market collapse in March 2021, Redrow plc is now trading at GBX 546.20. The stock has gained 45.3 percent in the last year, with 21.7 percent year-to-date returns.
Redrow plc can be the best UK stocks to buy with a trailing-twelve-month P/E ratio of 6.78.
Redrow plc stocks had a trading volume of £95410k with a market capitalization of £1.92 billion at the time of composing this article. Its 52-week stock price high is 743.60 GBX, implying a 36 percent upside objective at the current price of 546.20 GBX.
9. British American Tobacco (LON: BATS)
British American Tobacco is among the world’s largest tobacco manufacturers. You might be amazed to see BAT on our list of the best undervalued UK shares, given its massive market cap of over £92.40 billion as of March 2022.
Its current share price of 3129 GBX is well below its previous all-time highs. It last accomplished this feat in 2017, when the stocks reached a high of 5,578p. Since then, the stock market has been trending downward. In fact, British American Tobacco’s stock is worth just under 40% less than it was in 2017. However, this could be unjustified once more.
The tobacco behemoth is also involved in a business that is typically associated with staple goods. In layman’s terms, this means that consumers want tobacco regardless of how good or bad the economy is. British American Tobacco is also, and perhaps most notably, one of the finest dividend-paying stocks on the FTSE. This now stands at a trailing dividend yield of just over 10.59% at the time of writing.
British American Tobacco stocks had a trading volume of £5.48 million with a market capitalization of £92.40 billion at the time of composing this article. Its 52-week stock price high is 3456.20 GBX, implying a 10 percent upside objective at the current price of 3129 GBX.
10. Aviva plc (LON: AV)
On our list of the best undervalued stocks to buy right now, Aviva plc is ranked tenth. Barclays increased its price target on Aviva plc to GBX 505 in September 2021, while maintaining an ‘Overweight’ rating on the stock. The company’s growth potential was noted by the firm’s analyst, who believes it is well-positioned to advantage from the UK’s increasing insurance sector.
Aviva plc is a multinational insurance company based in the United Kingdom that offers savings, pension, and insurance services and is one of the top UK stocks. Due to the global market freeze in 2021, Aviva plc’s shares plummeted, reaching an all-time low of GBX 361.10. As a result, the company had to reduce its dividend payment. It did, however, recover in late 2021. Aviva plc currently pays a 5.37 percent annual dividend of GBX 21 per share.
Aviva plc stocks had a trading volume of £12.38 million with a market capitalization of £15.28 billion at the time of composing this article. Its 52-week stock price high is 488.80 GBX, implying an 18 percent upside objective at the current price of 412.40 GBX.
Advantages of Undervalued Stock
- Undervalued stocks’ prices will automatically come back to their initial or intrinsic value, ensuring profits.
- It provides a possibility to buy shares in promising organizations at a cheap cost.
- These stocks are also low-risk because undervaluation is repetitive, and the company has the possibility to achieve its real value.
Disadvantages of Undervalued Stock
- Such funds are not available to every investor.
- It takes a long time.
- Investors may be subjected to erroneous analysis.
How to Buy Undervalued Stocks?
Let’s look at how to invest in undervalued stocks now that you’ve discovered their advantages and disadvantages. Below is a step-by-step guide to buying undervalued stocks:
Step 1: Choose a broker
The first step is to find a suitable stockbroker if and when you’ve decided the best UK stock to invest in. There are numerous platforms available in the online world, so you must choose one that meets your requirements.
We’ve compiled a list of the top two trading platforms that offer some of the best stocks to buy to help you out:
1. eToro– Best broker to buy Undervalued Stocks
Purchasing undervalued stocks, as we briefly discussed above, is all about maximizing your potential profit. As a result, you’ll want to work with a stockbroker who can help you buy shares at a low cost. It doesn’t get much better than eToro in this regard.
The broker, which now has over 12 million customers, involves the purchase of all the best UK value stocks and over 800 shares commission-free, which include many of the best stocks to buy. This includes not only shares listed in the United Kingdom but also shares listed in 16 other countries. This includes the NYSE, NASDAQ, and TSE, among others. eToro stands out as an ideal broker for beginners because of its zero fees.
You can start investing as little as $50, once you’ve found an undervalued stock you like. This is fantastic because it allows you to easily diversify. The eToro Copy Trading tool is another notable feature. You can copy the portfolios of skilled investors and also their stock trades in progress.
In terms of deposits, you can fund your account with a debit/credit card, an e-wallet, or a UK bank account at eToro. The minimum deposit is $50, and there is a 0.5 percent currency conversion fee. The platform is heavily regulated, with a license from the Financial Conduct Authority. Your funds are also protected up to £85,000 thanks to eToro’s partnership with the Financial Services Compensation Scheme (FSCS).
- This online stock broker is extremely user-friendly.
- Invest in stocks without having to pay a commission or share dealing fees.
- There are over 800 stocks listed on the UK and international stock exchanges.
- Funds can be deposited using a debit/credit card, an e-wallet, or a UK bank account.
- Copying other users’ trades is possible.
- Protections under the FCA and the FSCS
- Not for advanced traders who enjoy performing technical analysis.
2. IG– Best CFD broker to buy Undervalued Stocks
IG is a well-known broker that offers over 10,000 stocks in UK to choose from. This includes shares listed in the UK, South Africa, Australia, Canada, and other countries, in addition to hundreds of companies based in the UK. This increases your chances of discovering an undervalued stock.
IG is not a free trading platform. It does not offer free stock trading. Stocks, can still be traded for a reasonable price. This starts at £8 per order, which you will pay both when you buy and when you sell your shares. This is especially beneficial if you trade in large volumes, as a commission based on percentage can be very expensive.
IG offers two different stock trading platforms. This includes MT4 as well as the company’s own proprietary platform. Both come with a wealth of advanced trading tools and technical indicators, making them ideal for chart analysis. You can also trade on the go with the IG mobile app. If you need to access your portfolio while on the go, this is a good option.
In just a few minutes, you can create an Instagram account online or on your phone. A minimum deposit of £250 is required. A UK debit/credit card or bank account is accepted as a payment method. The former is processed immediately, whereas the latter may take several days. IG is heavily regulated, with the FCA license being particularly important.
- Trusted UK broker with a solid reputation
- Good share dealing services at a reasonable price
- Short-selling and leverage are also options.
- CFDs and spread betting are two types of financial instruments.
- Market access to the United Kingdom and other countries
- Research department is excellent.
- A £250 deposit is required.
Step 2: Open an Account
Now that we’ve covered the two best stock trading sites for buying undervalued stocks we can buy stocks with any one of them. We’ve chosen eToro, our top-rated broker because it has one of the best share dealing accounts in the UK and allows you to purchase stock without paying a commission.
Select the ‘Sign Up’ option on the eToro website. The registration only requires some personal data this would include your:
- Full Name
- Home Address
- Date of Birth
- National Insurance Number
- Contact Details
As previously stated, eToro is licensed by the FCA and is affiliated with the FSCS. As a result, it must require all new account holders to upload some form of identification.
This includes the following:
- Passport or driver’s license
- Utility bill or bank account statement
Step 3: Deposit Funds
A $50 deposit is required and you have the option of paying with a debit/credit card, an e-wallet, or a bank transfer.
Step 4: Buy the Most Undervalued Stocks
You can start buying undervalued stocks as quickly you fund your eToro account. You must first look for the company in which you wish to invest. In this case, we’re investing in BP plc, a top-rated dividend stock.
Then we must select the ‘Trade’ option.
Simply enter the number of stocks you wish to purchase to complete your investment click the Open Trade button.
That’s it; you’ve just purchased some undervalued stocks without having to pay any commissions!
Stocks that are undervalued have proven to be valuable additions to a diversified portfolio. Few equities, in fact, allow investors to tap into more potential than stocks with ample room for expansion. To invest in undervalued stocks, however, traders must first understand which indicators to look for and which valuations represent a good buying opportunity. Numerous undervalued stocks can be found in today’s marketplace with thorough research, but for those of you confused deciding what to invest in 2022 UK, the stocks mentioned above should be a fine place to begin.
If you have a stock in mind that you believe is undervalued and want to buy it right now, eToro allows you to do so without spending any dealing fees. You could have your first undervalued stock purchase finished in minutes by following the button below!
Frequently Asked Questions
What are undervalued stocks?
You are basically buying undervalued stocks if you purchase them at a lower price than their inherent worth.
Which stock market is best for finding stocks that are undervalued?
Stocks that are undervalued can be discovered on all stock exchanges LSE, AIM, NASDAQ, and NYSE anyone.
What is the best ratio to use when looking for stocks that are undervalued?
Seasoned investors use a variety of ratios to identify undervalued stocks. The P/E ratio and the P/B ratio are examples of this.
How can I invest in undervalued stocks in the United Kingdom?
eToro allows you to buy undervalued stocks without paying any transaction fees.