Top 2 UK Value Stocks to Watch in 2024

Top 2 UK Value Stocks to Watch in 2024

Reading time: 9 minutes

For those new to the stock market, choosing which stock to invest in is not as easy as selecting companies that you like. With stocks often categorised between value and growth, investment strategies range from basic to complex.

Value stocks are defined as the share price of a company trading at a value lower than its intrinsic value or fair price value. The expectation is that the market will eventually reflect the company’s true value and generate returns for the investor (this can also be referred to as a reversion to its mean price or fair value). Value companies also regularly pay reasonably high dividends, which are found in sectors such as consumer staples and financial services. 

This differs from growth investing, which involves seeking companies that have the potential to outpace the growth of a market index and seldom pay out dividends. Typical growth stocks are innovative companies in the technology and communications sector. They are often more expensive than your average stock, trading at a high price-to-earnings ratio (P/E ratio). 

Finding UK Value Stocks

Valuation methods tend to be focussed on two core areas: the intrinsic value approach and the ratio-based approach. 

Here’s a brief overview:

  • Many value investors start by assessing a company's position to find stocks that are potentially trading below their intrinsic value. Investors attempt to find an economic moat (a term coined by Warren Buffet), which essentially means selecting companies that have a long-term competitive advantage. Is it a mature company with a solid management team that has been around for a long time and sells essential goods and services? If so, it could be a good foundation for your analysis (this means avoiding penny stocks as well as many small-cap stocks). 
  • As communicated above, value investors also implement a number of financial metrics to find value investing opportunities. However, for these ratios to be useful, investors compare them to peers within the same industry or even the market average. Popular ratios include the P/E ratio, which measures the current share price of the stock relative to its earnings per share (EPS). This helps determine the intrinsic value of the stock; investors generally target lower P/E ratios, suggesting that the company may be undervalued. 

As a final point, be aware that value traps are common: a stock appears undervalued based on low valuation metrics but is not immediately apparent. It is important that investors conduct due diligence and research the companies thoroughly.  

And with that, here are two stocks widely considered as potential value companies this year (analysis correct at the time of writing). 

1. Barclays PLC

Founded in 1690 in London, Barclays plc (Ticker: BARC) is a UK-based banking institution listed on the London Stock Exchange (LSE). Headquartered in London, the bank’s primary function is to provide financial services through personal and business banking. This is achieved through its consumer banking division, investment banking division and corporate division. 

  • The stock has a current market capitalisation (market cap) of £26.6b.
  • Using a discounted cash flow model, Barclays plc is approximately 40.0% below fair value at its current share price of 177p. Some desks target a fair value price of 230p, with estimated highs nearing 300p.
  • According to the company’s P/E ratio (6.3x), Barclays plc is considered slightly expensive against its peer average of 6.2x, but it is considerably lower than HSBC Holdings, Lloyds Banking Group, and Standard Chartered. Compared to European banks, Barclays plc is considered to be good value, with the industry average sitting at 7.3x. 
  • BARC's current dividend yield is 4.5%, and its payout ratio (the percentage of profits distributed to shareholders) is 29.0%. While volatile over the past decade, dividend payments have increased. 
  • The major banking player is forecast to grow earnings by nearly 8.6% per annum, and revenue is expected to increase by 5.0% per annum. For future performance for earnings per share (EPS), shareholder earnings are expected to be more than 14.0% per annum and return on equity (ROE) is anticipated to also increase over the coming years by around 10.0%.

Shares of the FTSE 100 stock are currently trading at 177.80p. The previous two years saw consecutive declines for the major bank. 2022 dropped 15.0%, followed by another moderate drop of 3.0% in 2023. Be that as it may, year-to-date performance (+15.5%) has seen price action recoup last year’s losses and has made a substantial dent in 2022’s downside move. Should the stock move beyond the 193.18p high (formed on 9 February 2023), we could then see 2022 highs challenged at 219.60p, a whisker below the fair value target.

2. Glencore Plc 

Founded in 1974, Glencore plc (Ticker: Glen) is a large producer and marketer of a wide range of commodities in the mining sector, focusing on metals, minerals, and energy products. Headquartered in Baar, Switzerland, Glencore plc operates in more than 35 countries and has nearly 150,000 employees.

  • The stock has a current market cap of £51.0b.
  • Using a discounted cash flow model, Glencore plc is approximately 7.0% below fair value at its current share price of 420.00p. Although it is undervalued, it is not by a significant margin. However, some desks target a fair value price of 452.00p, with estimated highs nearing 600.00p.  
  • According to the company’s P/E ratio (15.2x), Glen is reasonably good value compared to industry peers such as BHP Group and Antofagasta. The peer average is also currently 39.0x. However, compared to other companies in the GB Metals and Mining Industry average, which has a P/E ratio of 13x, Glen is considered expensive.
  • Glen’s current dividend yield is 2.4%, and its payout ratio is 38%. As a point of note, the company’s dividend payments have been volatile over the past decade and have seen a decline. 
  • The company is forecast to grow earnings by nearly 8.0% per year, while revenue is expected to remain stable. EPS is forecast to grow 7.8% per year, and return on equity (ROE) is anticipated to increase over the coming years (9.0% over three years).

Shares of the FTSE 100 stock currently trade at 420.00p. Last year was disappointing for its share price, dropping 14.5%, with 2024 also down slightly more than 10.0% as of writing. There is a clear downtrend present, though a pullback is currently unfolding, and a trendline resistance is seen overhead (taken from the high of 584.00p). According to analyst estimates, a break of this trendline could be seen, and this may lead to the stock transitioning to an uptrend to challenge highs of 479.00p, just north of the fair value price of 452.00p. 

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