Value investment in the UK – Investors Guide

guide to value investing

Value investing in the UK or globally is an investment in which we buy stocks at discount to their intrinsic value. To do value investing, investors find companies that are worth more than their current stock price. The fathers of investing, Benjamin Graham and David Dodd first mentioned the term value investing in their book “Security Analysis” written in 1939, then in 1949 they further explained this term in their book “Intelligent Investor”, which are known as the foundational text and best-known books for value investing till the date. Warren Buffett, the business magnate is also a well-known value investor, he has supported value investing again and again. You can start following the footsteps of these legends anytime but investing in value investing is not easy as it looks.  Before you jump straight into value investing, you must be aware of what it actually is, what its potential is,  how and where you can get started.  As Warren Buffett quotes-                      

 “value investing is simple but not easy”

In this guide, we will cover the topic in-depth so that you can get started today. Make sure to stick with us until the very end of the article.

What is value investing?

Value investing is not only the best trading strategy but also the most favourite strategy that experts perform. It is the investment strategy in which investors buy shares that are undervalued in the hope that at some point in the future the price will increase to meet the intrinsic value. 

value investing graph illustration

To have a keen knowledge of value investing you should first have a crystal clear understanding of its three basic theories. 

#Theory 1 

The first theory states that a price and a value are two different things. According to value investing every company holds a value which is called intrinsic value that solely depends on the financial growth and future growth of that company. Whereas, each and every stock price of a company solely depends on the Market. And, stock price value varies from intrinsic value, which means that it can either be more or less. For example, if a company’s intrinsic value is $500 per share, then its stock price can either be $450 per share or $550 per share. 

#Theory 2 

The second theory states that price fluctuation in the share market is an opportunity to buy undervalued stocks. Commonly, while investing it is believed the higher the price fluctuates the higher is the risk. However, value investors believe that undervalued stocks are the result of price fluctuations. That is to say, due to price fluctuation intrinsic value of a stock decreases that create undervalued stocks. Hence, creating opportunities to buy undervalued stocks. 

#Theory 3 

The third theory states that the price of stock eventually follows its intrinsic value in the long term. For example, suppose a stock’s intrinsic price is $500 and its market price is $100 but in the long term its market price will eventually reach its intrinsic price.

Benefits of Value Investing in the UK

  • In value investing, you buy stocks that are already undervalued. That means, it is less likely that it will fall any further. And, if you buy low, that automatically minimizes the downside risk. That’s why value investments are considered low-risk investments.
  • Another benefit of value investing is that it does all the work on its own, you are not required to watch the stock market regularly. The only work you are required to do is to decide what company you are investing in, entry and exit targets. 
  • Value investments also allow you to take advantage of compound interest but only if you are focused on dividend stocks. Most of the value investors even reinvest dividends to make even greater investments over time. Reinvesting is one of the most used strategies performed by experts.

Deep Value Investing

Deep value investing is a value investing strategy in which investors specifically buy shares in a company that have very low stock prices relative to their intrinsic value and historical average price. This is considered as a more extreme value investment strategy that is riskier than typical value investing.

Well, before you invest in beaten-down companies it is important to have a deep analysis of why the company is offering stocks at a very low price. Because there are chances that the company is struggling financially or may never reach back to its intrinsic value. 

Value Investing vs Growth Investment

Value investing and growth investing are both long term investment strategies, though they both differ in a way. 

Before buying value investment stocks, value Investors first look at the stock price data, that is whether it is below the intrinsic price or not. 

Whilst growth investors on the other hand look for companies that are sharply growing their earnings per share over the year. These companies are normally priced at a premium rather than priced below the intrinsic price. When compared in terms of risk, growth Investing tends to be riskier than value investing.

Best undervalued stocks to buy in the UK 

Listed below are the best-undervalued stocks to buy in the UK in 2021 to build your value investing portfolio in the UK

Cineworld Group PLC (CINE)

Cineworld ranks at the top in our list of best-undervalued stocks to buy in the UK. On 6th January 2020 UK cinema’s share price was worth 219.70 but the year after in 2021 the share price decreased to 65.54. This huge fall was devastating for the Cinema sector. However, this fall does make sense as the whole world was under lockdown. Even at the present times with the second contraction of covid 19 reopening cinemas anytime sooner looks impossible. 

That’s why Universal pictures and AMC Entertainment decided to merge to create a new partnership in which Netflix and Amazon will showcase new releases until things get back to normality.

value investing - Cineworld price Chart

EasyJet PLC (EZJ) 

The second undervalued stock that we have on our list is EasyJet, the UK airline group. 

EasyJet is the well known and most used airline to fly in and around the UK.

Due to the national and international travel restrictions placed by the government,2020 was a heartbreaking year for EasyJet as it was for Cineworld. However, for undervalued investors, this was a great opportunity to invest in EasyJet because as predicted the share price will eventually go higher and higher once the restrictions on international travel are normalised. Today, at the time of writing this article EasyJet share price is at 630.89. If you are looking to buy an undervalued stock to build your value investing portfolio in the UK then EasyJet PLC is your way to go.

value investing - eayjet price Chart

Imperial Brand plc (IMB)

The imperial brand is one of the world’s largest international tobacco manufacturers that is situated in Bristol. It has over 51 factories that are spread worldwide with products being sold in over 160 countries. This leading company manufactures almost every tobacco product, including heated tobacco products, oral nicotine alongside all the ranges of cigarettes, beer and prepared food. IMB has everything from a good reputation to good future growth and most importantly a healthy financial outlook. 

IMB is a good choice when looking to invest in Value investment as it also gives you access to Dividend stocks.

ITV PLC 

The British well known and most loved TV channel, ITV, had been the most popular and the biggest TV commercial channel since 1995 when it was first founded. The biggest rival of ITV is BBC one. The content that ITV produces is available across many free to air channels, it also deals with Virgin and Sky which showcases most of its channels while staying in the deal with Other platforms like Netflix and Amazon as they offer online advertising deals and ITV choice subscription. 

If we see the numeric terms, ITV has grown only by 24.3% over a period of years. That means in the long term this stock will definitely grow. Though the company’s annual earnings decreased by 4.6% over the past 5 years, which is not so bad, the sad part is that the company’s net worth has also been affected as it decreased by 9.9% in a year.

Apart from this, the company has the potential to grow in both the short and long term as it is looking for new ways to start entertaining on the screens once the pandemic effects are over.

Basically, all of this concludes that investing in ITV as a value investment can result positively in the long term.

BP

For value investors, investing in oil and gas giant BP stock is a wise decision to make as it is trading more than 50 per cent below the level it was at two decades ago and the fact as it is a well known cyclical industry that will surely rise in the long term.

Walmart

Another undervalued stock that we have on our list is Walmart, one of the biggest companies in the US stock market. This retail trader trades at a PE ratio of 22.9, whilst its rival, Amazon trades at a PE ratio of 89.6. Along with the PE ratio, Walmart also offers a dividend yield of 1.50%. 

CVS Health

In the healthcare industry, CVS is one of the best option value investments in the UK right now. But, health care as a value investment and that too in the times of covid-19 may sound awkward, but yes this is true as it has faced reduced in-store traffic from the covid-19 pandemic resulting in an ultra-low dividend PE ratio of 9.5 and a dividend yield of 3.4% 

Best Platforms for Value investing in the UK

There are a variety of brokerages in the market that claim to offer value investing, but it is very difficult and challenging to find the brokerage that is suitable for you and fits your financial goals perfectly. It requires ample time to analyze and look at the key metrics like fees, commissions, investment assets, regulation for each and every platform.

Therefore to save your time and energy we have listed down the best brokerage Platforms that you may consider for making high-risk investments in the UK.

eToro- world’s finest broker 

eToro- value investing platform in the UK

eToro is the world’s finest broker that allows you to access value investments. This platform is packed with all the amazing qualities on which we measure the best brokerage platform. It is the most favourite trading broker in the UK for several reasons. However, the very first reason that attracts thousands of traders towards it is that it offers a variety of assets including the best value investments commission-free. Except you will be required to pay a 0.5% fee on all your deposits and $5 on every withdrawal. It is the cheapest brokerage platform in the UK.

For beginners, eToro provides the copy trading feature. This feature allows you to copy ongoing trades of expert traders. You can also use the copy portfolio feature, which allows you to diversify your investment portfolio. Unlike other platforms, account creation on this platform is not time-consuming. It takes only a few minutes to create an account on eToro. Once you are done with creating an account you are then required to fund it to start your trading journey. For the convenience of its user’s, it accepts various payment methods for making a deposit such as Debit/Credit Card, Bank account, e-wallet e.t.c. The platform also offers a mobile application for the convenience of its customers.

Pros 

  • Beginner-friendly
  • Allow you to buy stocks without paying any Commission
  • Allow you to trade CFDs in the form of stock,
  • Regulated by the FCA
  • Offers 150+ ETFs
  • Offers a variety of payment methods

Cons 

  • Not suitable for advanced traders

Fineco Bank- Advanced platform

Fineco Bank- value investing trading platform in the UK

The next online broker platform on our list is Fineco Bank. This online broker is FCA regulated and is partnered with FSCS to safeguard the funds of its investors. This platform gives you access to various asset classes, thousands of international stocks, dozens of exchanges and markets and a variety of value investment shares. The only drawback to FinecoBank is that it doesn’t support cryptocurrencies or Copy Trading tools. It offers low investments and requires a small annual fee of 0.25% of your total account value. This small fee applies to each global exchange you invest in. One of the most beneficial things about investing with Fineco is that it gives you access to a set of portfolio management tools. These tools can help you to understand whether you are overexposed to a single industry or not. It also allows you to diversify your value stocks portfolio.

Pros 

  • Regulated by the FCA
  • Allow access to thousands of UK and international shares 
  • Allow depositing with UK bank account 
  • Beginner-friendly 
  • Offers great research and educational department 
  • Charges a small amount, £2.95 per trade when buying and selling shares. 

Cons 

  • Charges 0.25% annual fee

Skilling- Best CFD Broker

Skilling- value investing trading platform in the UK

Another broker that we recommend you for value investing in the UK is skilling. This platform allows you to access more than 700 shares from the UK, US and Europe, including several high-paying dividends stocks. This platform also allows you to apply the leverage of up to 5:1 to your stock investments because it allows you to invest through CFD only. Unlike other platforms, skilling charges a low overnight fee for leverage.

Skilling is highly suitable for first-time value investors as it offers a variety of simple tools.

Pros

  • Do not require fee or commission
  • Offers 700+ shares 
  • Offers a leverage of up to 5:1 for stock CFDs
  • Offers trade assistant

Cons 

  • Little stock analysis

How to buy Value Investment in the UK? 

Buying Value Investment in the UK is a simple procedure. Here, we are taking eToro as an example to make you understand the whole procedure of buying high-risk Investments in a super-easy way. And, of course, because we highly recommend this broker as it is commission-free and allows you to diversify your trading portfolio. 

Below are the steps that you are required to follow to buy value investment in the UK.

Step1: Create an account 

The very first step to buy a value investment asset is to create an account. To do so you are required to register yourself by filling in a registration form that is available on its official website. In this registration form, you will be required to enter a few of your details such as your name, email, phone number, and you are also required to set a strong password for your trading account. After filling in all the required fields, you are then required to accept the terms and conditions to move to the next step. 

eToro will ask you to verify your identity by uploading some of your documents, don’t worry as your documents are truly safe on this platform. However, you don’t need to undergo verification until you deposit more than $2,250 or you request a withdrawal.

eToro step 1 create an account

Step2: Fund your trading account

Now that you have successfully registered on this platform you are now all set to fund your trading account by making a minimum deposit of $50. This funding amount isn’t the fee of the robot but the working capital that is needed by the traders to execute trades. eToro offers several payment methods for the convenience of its traders, you can choose whatever method you feel more comfortable with. The payment methods that are supported by eToro are Debit/Credit, PayPal, Skrill, Neteller, and Bank transfer

Step3: Buy Value Investment 

Now that you have successfully funded your account, you are then allowed to buy a value investment stock of your choice. To do so you are required to select your preferred stock. For example, if you want to buy BP shares, then type ‘BP’ in the search bar at the top of the page and click ‘Trade’ when it appears in the drop-down menu. Then, enter the amount you wish to invest in BP, click on the ‘Open Trade’ button. Congratulations, the preferred value investment is successfully added to your eToro portfolio. 

Conclusion 

value investing graph

Value investing is a well-known strategy used by well-known investors like the father of value investing, Benjamin Graham, and Warren Buffett. Value investing has the potential to multiply your gains over the years without bothering you to follow day to day volatility of the market. If you are looking to be a value investor then you can start doing so right away with the world’s best trading platform, eToro. 

FAQs

  1. What is value investing?

Value investing is a style of buying stocks at a cheaper price than their intrinsic price. 

  1. What is an intrinsic value?

Intrinsic value is a book value or a valuation that investors target when choosing stocks.

  1. Is there a course available to learn value investing in the UK? 

At present time there are many online courses that allow you to learn investing like a pro from the comfort of your own house. Also, if you cannot afford to pay for an online course, then you can benefit yourself from the internet, you can watch YouTube videos, read blogs and listen to podcasts. 

  1. What are the best books to learn Value Investing in the UK? 

“The Intelligent Investor” written in 1949 by the father of investing, Benjamin Graham is the best book to date. A value Investor must read this book to start investing like a pro. Other books like Common stocks and Uncommon Profits by Philip Fisher and ‘Business Adventures: Twelve Classic Tales from the World of Wall Street’ by John Brooks are also the best books that are recommended by the well-known value Investor and the business magnate, Warren Buffett.

  1. How do I find value investing in the UK? 

To find the best value investing opportunities you need to stay updated by using stock newsletters or research sites, or you can also create your own custom database of stocks and valuations.

  1. Is value investing in the UK good for me? 

Well, you yourself can answer this question by asking yourself about what are your financial goals, whether you have a big or small risk appetite or whether or not you are willing to do a long term investment. 

There are no eligibility criteria on who can do value investing, as long as you are determined to do it, you can do it.

  1. What is intrinsic value? How is it measured?

Buy and sell orders in the stock market are made based on price movements. Value investors believe over the long run the price of the stock will match its underlying value or known as intrinsic value. 

That means the time you purchase the stock, 

It’s priced below its intrinsic value, and that is the discounted value on which you purchase a particular stock.

There is no one way to estimate a company’s intrinsic value, some investors use the simple P/E ratio ( price to earnings ratio), which explains the price one needs to pay for $1 of profits, other investors use relative measures like PE of the company vs the industry and there are others who use discounted cash flow method, replacement cost approach and many more.