We believe that some UK stocks are being sold as a result of market instability. The price of many stocks has fallen as a result of macroeconomic problems like rising interest rates and growing inflation.
In this post, we discuss two UK stocks that appear to be undervalued at the moment and dissect a possible golden opportunity.
Scottish Mortgage Trust
An investment trust established by a management group dedicated to identifying high-growth prospects is called Scottish Mortgage Trust. In essence, they search for solid companies that have the potential to develop and offer profitable returns to investors.
Let’s examine the current share price of Scottish Mortgage in more detail given the recent decline in several UK stocks. The price of the shares as of this writing is 666p. They were trading for 768p at this time last year, a 13% decrease from that point in time.
Shares of Scottish Mortgage now trade at a discount to net asset value (NAV) of around 20%. NAV is the worth of a company’s total assets, less its liabilities, divided by the total number of outstanding shares. As a result, when shares are less than the stock’s net asset value, it indicates that the stock’s market value is less than its asset value.
It is important to remember that this scenario could occur for a number of reasons. Negative expectations and upcoming company issues may have an influence on investor sentiment. In essence, we can get £1 worth of Scottish Mortgage shares for 80p.
Scottish Mortgage consistently predicts the next major growth stock before the general public does. We are aware that past success does not guarantee future success.
Finally, we find the portfolio composition of Scottish Mortgage to be intriguing. The emphasis is on tech equities, which include, among others, ASML, Alibaba, Tesla, Nvidia, and Amazon. The previous few years have seen tremendous growth in the technology sector, and the recent boom in artificial intelligence (AI) may signal further expansion. Therefore, I might add some shares in one firm like Scottish Mortgage for exposure to numerous top companies rather than investing in a lot of UK stocks for profits.
Risks and verdict
To begin, 70% of Scottish Mortgage’s holdings are public equities, which are easier to evaluate because they have a market price. Private investments, ones not traded on the stock market, account for the remaining 30%. Elon Musk’s SpaceX is a great illustration of this. The problem here is that the performance and returns of the trust may be impacted by these private investments’ potential overvaluation.
Another concern that has arisen for Scottish Mortgage is the recent boardroom turmoil. Recently, one of its directors voiced his displeasure with the company’s approach to privately held companies. Even though the offending director is no longer on the board, situations like this don’t exactly boost investor confidence.
Overall, we think highly of Scottish Mortgage’s stock and would increase our holdings if we could. We think it’s one of the greatest UK stocks currently available at a bargain. We chose it because of its performance history and growth-focused strategy, particularly with tech stocks.
Marks & Spencer
Marks & Spencer appears to be improving. And the shares have been responding well to corporate improvements.
The share price has doubled since October 2022 and is currently about 194p. And it’s increased by just over 50% in the last 12 months.
However, City analysts’ profit and dividend predictions are bullish. The price was much above 500p as recently as 2015 as well.
Over that time, the retail scene has been changing rapidly. In addition, the company now faces less competition on the high street. That’s not all, though. ASOS and other purely online retailers have had difficulty. The new “purple patch” for shops is to have both a strong online presence and physical stores.
Well-positioned to succeed
M&S is in a good position to benefit from that trend. Both its physical store and internet sales have been increasing. And we’d classify the business in an exclusive category alongside other powerful retailers who are prepared for the current retail trends. It seems to fit in nicely with brands like Next, Dunelm, and Burberry.
We are not blind to the risks. All retail operations have a particular vulnerability to the ups and downs of the wider economy. And if there is a protracted slump in the years to come, stockholders might suffer greatly.
Stuart Machin, the CEO of M&S, was optimistic in May. The board of directors is committed to restructuring the company for expansion. Furthermore, Machin claimed that after just one year of implementation, activities had already produced “sustained” trading momentum.
Future development is neither certain nor certain. But if the business can maintain its turnaround and generate continuous business growth on that foundation, it wouldn’t surprise us to see the share price move back above 500p in the years to come.