Do you want to be a part of the UK’s undervalued stocks that are set for good momentum in 2021 and beyond?
Take a look as we break down 10 of the top undervalued stocks to add to your portfolio for the new year.
Top 10 UK undervalued stocks
To start on a positive note undervalued stocks are truly hidden gems within the marketplace.
As we start going into the new year, it's safe to say that 2020 sadly hit many sectors hard due to the pandemic and is continuing to do so at the start of 2021.
However, with the hopeful news of the second vaccine coming to light and as the economy slowly starts its recovery, undervalued stocks are stocks to look intently into and look to add to your blooming collection of stocks, or if you are new to trading to add to your beginning portfolio.
In 2020, many company’s share prices fell cheap which were not all for negative reasons although, one more than likely obvious reason for many was, Covid-19. But having said that these stocks are different as opposed to undervalued stocks.
But without further adieu, let's take a look into some of the UK’s best undervalued stocks that many experts believe that these stocks could bring good returns in both the short and long-term.
The Top 10 Undervalued Stocks in The UK to Buy in 2021:
10. Redrow PLC (RDW)
Let's take a look into what establishes an undervalued stock as we take a look and learn 10 of the best undervalued UK stocks on the market today.
What is an undervalued stock?
An undervalued stock is a stock in which it is on the open market selling at a price which is significantly below its true intrinsic value or ‘true value’ in simple terms.
For instance, if a stock is selling for £40 but is worth £100 based on the stocks financial predictions, then this is how you declare a stock to be undervalued.
It is essentially buying a stock at a discounted rate.
But the fundamentals behind finding key stocks are deeper than you may think.
Diving into a company's financial elements when evaluating an undervalued stock is how you determine the company's intrinsic value which is carried out by fundamental analysis. Looking into various financial sectors such as financial statements, cash flow, profit generation and capital management.
These financial elements will determine the company's intrinsic value which will evidence more so, if the stock is an undervalued stock.
When looking for undervalued stocks investors need to do more than just looking for cheaper share prices, it takes time and understanding to read a company’s prospects for the long-term in terms of growth and stability.
Purchasing the right undervalued stock with good potential can be significantly rewarding with its profit opportunities as the business continues to grow over time.
A perfect example of how rewarding investing in undervalued stocks can be is taking the high-profile investor, Warren Buffett as a good example.
Buffett, one of the world's richest billionaires and the stock market guru has expressed and shown what the results can bring from investing in such undervalued stocks.
Buffett has expressed that reading upon reading is one of the key fundamental factors when researching your chosen undervalued stocks, along with taking the strategy of value investing to another level, his level. As Buffett will wait for the undervalued stocks to be favoured by the world which in turn sees his aims pay off.
Which is why Buffett is a figure many investors respect and admire within the finance world.
Alongside Buffett another high archiver is his partner Charles Munger, who described his definition of an undervalued stock.
“An excellent stock at a fair price is more likely to be undervalued than is a poor stock at a low price” - Charles Munger.
Key reminder - Intrinsic value is different to current market value.
What is value investing?
After understanding what an undervalued stock is it is then worth discussing value investing and what this entails.
Value investing simply is a key investment strategy that looks for undervalued stocks or securities within the open marketplace with an aim to purchase and or to invest in them.
The method enables investors to buy stocks at their current relatively low prices with the probability of gaining a good return.
What makes a stock undervalued?
Stocks can become undervalued for various reasons and it can also seem as though it can happen overnight, especially how 2020 has shown and proven this to be true.
A stock can be undervalued for the short-term or they can progress to be long-term undervalued stocks, with both having numerous reasonings as to this being the outcome.
Some of the various factors including stock market crashes, simply lack of interest from investors, financial results and as we have seen this year impacts from unexpected events that take over which unfortunately hit various sectors significantly causing many troubling factors.
Having said that, undervalued stocks can bounce straight back, especially if you relate it to the current world situation as the UK economy recovers and all sectors start to move forward.
Top 10 undervalued stocks to buy in the UK
Before we head into the chosen stocks it's worth advising that classifying a stock as an undervalued stock is subject to different factors.
Factors in which include investors looking into each company's ratios via stock ratio analysis which advises a stock's price and outlooks the possibilities of a company swaying either towards being over or undervalued.
Typically if a stock has a low PEG (price/earnings to growth) it can signify that it is undervalued.
Here is the list of 10 good undervalued UK stocks that offer good potential growth in the coming years with a mixture of stability.
Besides the chosen 10, there are more undervalued stocks out in the open UK market at present who are set for bigger horizons, among this year and over the coming years.
The list of 10 undervalued stocks set across various sectors have shown great prospects in the past and present and for the coming years, let's take a look closer into each one.
1. Cineworld Group PLC (CINE)
2020 was a devastating year for the cinema company who took a huge hard hit as the pandemic swept across the nation, along with the world.
And to show you in numeric terms, the leading UK cinema company’s share price today stands at 65.54 whereas a year ago the brands share price was almost four times higher at 219.70 as of the 6th January 2020.
As the pandemic took over the world it forced companies to slow or seize trading altogether, temporarily.
Cineworld’s share price plummeted from the late 100’s in February to as little as 20.39 on the 18th March 2020.
In reality with the recent events of the second contraction of Covid-19, it is prolonging the cinema brand from fully reopening its movie theatres as they all still remain closed across the UK alongside other non-essential businesses.
Which to date the company is relying on tiny or if any income at all, which is then eating away at its cash flow as the companies payouts continue to be owed.
Many will question and debate how big companies such as Netflix and Amazon Prime Video will affect the share of the cinematic industry on top of this.
Whilst cinemas have been closed, two giants within the industry Universal Pictures and AMC Entertainment merged to create a partnership in which brings new releases to be showcased through the likes of the two named streaming platforms above, whilst being in the comfort of your own home.
Following the news of the merging of the two brands, this did take a hit to Cineworld’s share price when the news was announced.
However, having stated the obvious above once the world slowly starts to operate, edging into the new normality and as the economy continues to grow, it's the pleasures of going to the movie theatre that individuals across the nation and worldwide are looking to participate in.
The company’s revenue is forecast to grow 36.00% per year.
Looking at the company’s ratio performances, the PB ratio is good value vs the GB Entertainment Industry, however the company’s PE (price-to-earnings) ratio stands at 4.72% but due to the company not being profitable over the last 9 months, the ratio will edge higher once the company can be fully operational.
The company along with having their physical presence on show with movie theatres across the nation and internationally, also have their hands in other areas too. Including retail, financing, cinema property leasing, film distribution, advertising, software development and promotion activities.
Forecasts have been set for the company by analysts to evolve in the year as revenue earnings have been forecast to grow by 95.8% per year over the next 3 years.
Although the brand is extremely volatile, its volatility is decreasing as it has decreased to 19% from 30% over the past year. Following the positive news of gaining control of the virus, we are sure that the brand's volatility will soon be relatively stable.
Although this stock could potentially be a slow burner and realistically poses a high risk of volatility due to Covid-19 with its cash flow and its share price along with the uncertainty that surrounds as to when the cinemas across the nation are set to look to open.
Still, we believe that Cineworld is an undervalued stock that is not to be overlooked for the long-term as it has room for the potential gain of growth within its figures.
2. EasyJet PLC (EZJ)
The second stock to come next on the list is the UK airline group EasyJet.
Okay, granted another stock that is arguably one of the UK’s best well known and one of the most used airlines to fly in and around Europe, has like most of all aviation companies has had a heartbreaking year to say the least.
But on the positive side, the airline group although naturally are showing volatility due to the uncertainty around international travel as restrictions have been placed across the UK caused by the spreading of the virus, is looking optimistic considering.
The forecast for the future is looking positive now the vaccine is being enrolled slowly across the globe.
Sticking to the positive news analysis have predicted and given the company the green lights for the future growth for the airline company as they have predicted a forecast of 78.1% over 1-3 year period.
Although the airline chain is a risk or a big risk at present, it's only a matter of time before we can return to international travel once again.
At present EZJ share price is at 767.00 and has been deemed to be classified as an undervalued stock due to its financial results over the past 9 months, the companies restricted travel which is still ongoing and its high cash flow that the company is liable to pay and subject to its available cash flow, may pose a risk element.
So in the bigger picture, although EasyJet has its fair shares of downsides, EasyJet has all the green lights for the future growth in terms of its revenue which the company's current revenue of 20.7% per year has been forecast by analysis to increase by 20% per year.
This undervalued stock is one to look into and keep a firm eye on following the announcement that will allow international travel one again, predictions for the airline are set to go high.
3. Sportech PLC (SPO)
The British company founded in Bristol in 1923 is still hanging in well in 2021.
The online gambling and English sports entertainment company lends its technology solutions to all across the UK and also internationally across North and South America, Europe and more.
Trading on the London Stock Exchange across two sectors one being FTSE Small-Cap Index and the FTSE All-Share Index, the company has proven to be a hidden talent over the years.
In 2000 the company which was then known as Rodime PLC changed its name after acquiring The Littlewoods Organisation that year for £160 million. After the change of name, the company focused more healthily along the online gambling sector mixing two power forces, horse racing and technology together.
Sportech’s digital segment is a force within itself and has proven to be a wonderful success, shown from its results.
Now on to the most important part, how is this company a good undervalued stock?
To start the company's balance sheet is flawless as it boasts strong health within its financial figures in both short and long term periods and to add more positivity the company acquires zero debt.
A healthy and stable cash flow which has been maintained throughout over the past 3 years even when it has shrunk by an estimated 17.1% per year, it still has plenty of free cash flow hanging in the waiting.
As of recent, the company's share price stands at £0.27p and only moves marginally in the bigger picture over a 3 month period of around 9%, which shows why the company is a good stable stock.
For the future growth the potential is overwhelming once we return to some form of normal times. As live events will be presented and are able to be attended which Sportech are a part of, alongside the running of the brands online gambling platform.
Looking at the company's positive financial reports, it's understandable from the results as to why analysis has predicted a healthy growth forecast of 103.09% per year.
In comparison to its competitors, Sportech is ahead with its financial health and long-term growth prospects. Which is why Sportech is an undervalued stock to add to your list for 2021 and beyond.
4. Imperial Brands plc (IMB)
The company headquartered in Bristol is a British multinational tobacco company which has over 51 factories worldwide and has its products sold in over 160 countries.
The leading UK tobacco company has evolved well over the years and has adapted to the new changes when it comes to e-vaping products, heated tobacco products and oral nicotine alongside offering all the range of cigarettes products we are aware and know of well.
As well as its obvious line of work, the brand is involved in various other avenues including marketing, publishing materials, industrial delivery and express delivery, support management services and more.
In comparison to the brand’s competitors, IMB has a good mix of it all. A good firm history, good future prospects, a healthy financial outlook and lastly a very strong value.
As opposed to some of the brands biggest competitors who are lacking in one of the areas at least that IMB covers.
Another positive element for the company is that it is a dividend stock which has been known widely to be a well paid reliable dividend which is based on the company's revenue as to what percentage investors will take away.
What is a dividend stock?
Whilst on the subject, if you are new to investing and not sure as to what the terminology is for a dividend stock, it is fairly straightforward.
A dividend stock is a company that pays out to its shareholders every quarter from the company's revenue earnings.
It's a good source of regular income given throughout the year in regular intervals as opposed to none dividend stocks.
If you're looking for that regular source of income, read Top 5 Dividend Stocks to Invest in for 2021 where you will find five of the best paying dividends on the open market to date.
IMB's financial reports show not only is the brand fairly stable it has also been deemed to be undervalued for what the potential can be achieved by this bright stock.
Over the past year, the company grew by 48.1% and the company has been forecast by analysis to grow by a further 8.85% per year moving forward.
Its current share price at 1,563.28 and a P/E 9.79% which is shown to be a good value based on its P/E in comparison to the industry average.
Set the P/E ratio against the UK market, it still shows good value.
The company's past performance is standing in its favour as it has been reviewed by analysts to be up 0.7% to date and is all in green across the board including the companies net profit margins which is 9% higher than last year at 6.2%.
The company does come with slight risks too which you have to bear in mind. Risks include its debt level which has been considered high with a debt-to-equity ratio being 211.7%, although this figure has been decreasing over the past five years and will continue to do so for the foreseeable.
Imperial Brands is an undervalued stock to buy and hold of for the long-term. With the brand’s positive financial results, an 8.88% dividend yield and its new products being escalated in the background forming potential new revenue, makes this a good addition to your growing portfolio.
5. ITV PLC (ITV)
The British well-known and loved TV channel comes in on the list of the top undervalued companies to buy into for 2021.
Since it first graced our screens back in 1955 when the company was also founded, it has since become the most popular and the biggest TV commercial channel in the UK and is running alongside its competitor channel, BBC One to aim to be the most-watched TV channel to date dating back to the 1950s.
Operating through broadcasting online, ITV also creates and produces its original content which is available across many free-to-air channels including ITV, ITV2, ITVBe and more.
Moving into more modern times, ITV also has deals with Virgin and Sky which showcase most or if not all of their channels to paying consumers along with deals with other top platforms including Netflix and Amazon who offer online advertising deals and ITV choice subscriptions.
As of up to date financial figures for the company show, there is definitely more room for this stock to grow in the long-term.
To start, ITV was up 48% from its last quarter results and has been forecast to grow by 24.3% over a 3 year period.
Although, ITV’s history in terms of the company's annual earnings over the past 5 years are slightly down by 4.6%, which is not bad in the bigger picture but the company's net profit margins have also taken a fall to 9.9% from last year at 14.4%.
Alongside ITV’s above figures, the debt for the company is also on the high side and has been increasing over the recent five year period to a figure which now stands at 115.1%.
But flipping back to the positives, the company's financial health is looking optimistic in both short and long-term pathways with the company's assets outweighing its liabilities comfortably.
The company's share price stands at 106.85 to date as it rises, however over the past year sadly has witnessed a severe decline which it was reported that in total the share price is currently down by 60% to date.
In terms of volatility ITV’s share price has been granted an average rating over the past 5 years.
But despite these challenges, the company is still looking ahead and looking to adopt new ways to entertain on the screen along with running closer to operating an old normal work pattern which was and is currently impacted by Covid-19.
Which brings us to conclude that although ITV may be a slow-burner it is still a stock to buy and let it burn for the long-term.
6. Taylor Wimpey (TW)
2020 was actually a good year for the property industry, considering world events.
One UK property residential developer which has had a promising year is Taylor Whimpey.
Headquartered in High Wycombe, UK and also operating internationally in Spain, Taylor Wimpey sets out to create modern living with unique tailored style at affordable prices.
Showing a clean and flawless balance sheet along with good value, TW. is coming above its competitors with its stable promising prospects for the future.
Considering in recent weeks, the company's share price has caught the eyes of many investing gurus to keep a close watch, so too has the company’s financial figures.
With a forecast set for 34.0% growth in the coming 3 years, the company's financial health is strong as it lights up in green with its short term assets which significantly exceeds the company’s liabilities and lastly, the company's debt level at 2.8% is surrounded by free cash flow if needed, is just three big key factors for this undervalued stock.
For the long-term prospects, the company is shown to have higher liabilities than assets.
Although the future is set to be bright for the long term as the company’s revenue continues and is expected to grow over the coming years, it will also bring in further cash flow to be available.
As the UK government’s plans are still ongoing with the stamp-duty holiday, TW. has benefitted hugely and has a forward booking set for mid 2021 and still filling up further for the year.
Even the company's share price increased by 20% in the past couple months, which for a mid-cap stock is making its voice heard.
The company's share price as of 5th January was £1.61 which is anticipated to increase over the coming weeks.
If you are a beginner investor and you're interested in TW. stock, it's wise to carry out further additional research before you look to buy, including the current share price for the stock.
But this is one stock that is an undervalued stock with ample room for growth that can be archived in the short and long-term.
7. BAE Systems PLC (BA)
The British multinational defence security and aerospace company which was founded in 1999 is catching the eyes with its financial figures and its increasing share price recently.
The company's share price stands at 494.40 which many analysts have valued as reasonable as they believe it will carry on climbing and considering the room for potential growth that the company can achieve.
Alongside the share price, BA is a very reliable and strong dividend which the dividend yield stands at 4.70% and is also within the top 25% of the dividend payers within the UK market.
The company's debt is one of the negatives for the company. However, it is something that can be knocked down over time and at present the company stands high on its debt level with a debt-ratio-to-equity at 101.7%.
As advised the company is slowly chipping away at the debt as it has been reduced by 53.3% in the past 5 years and as time moves forward will decrease further.
Over the company's five year history its annual earnings is deemed to be 10.4%.
BA has high-quality earnings although the company's net profit margins are currently down by 1.2% from last year.
Which brings us to conclude, BA is an undervalued stock to look to add to your portfolio.
As the company's ratios balance fairly although needing slightly more improvement, this is just one factor to be aware of and investigate further into before jumping straight in.
But with a forecast set for the company to grow 8.89% per year, along with a good share price, it will be a shame to miss this opportunity.
8. Card Factory PLC (CARD)
Card Factory plc is an operating retailer of greetings cards which first opened its doors in 1997.
Offering a wide selection of cards from birthday cards to general occasion cards with gifts, prints, designs and gift wrapping materials also being available to purchase.
The British company operates across various locations which include high streets, shopping outlets as well as having their e-commerce side of the business online.
CARD products have become more popular over the recent years due to its relatively affordable and low cost for such quality cards and additional products such as balloons and gift wrapping.
Which is leading the way above competitors such as Clinton Cards and TheWorks and even trying its hand to become more popular than Paperchase within the UK who is an International chain of greetings cards and additional products.
CARD has been classed as an undervalued stock by analysis which has been forecast to grow 58.97% per year.
So the big positive element for the company is the future aspect of the value it can achieve.
Looking into Card Factories history over recent years, the company hasn't had a mind-blowing effect to say the least, however, for a small-cap stock the company is aiming for the right direction.
Based on the company’s performance over the past 5 years it is showing a negative result of -11.2% annual earnings with its net profit margins down by 7.1% from last year.
The company also has a high amount of debt which is also a factor to look into before you invest. As it stands the debt-to-equity ratio stands at 158.59%.
However, going back to the positives CARD is profitable and is expected to grow 59% over the next 3 years along with having a stable share price which has been stable for over three months which currently is at 40.56 per share.
As the company has been hit again with the recent news confirming a national lockdown within the UK, will see the company's doors close again for the third consecutive time over the course of the 9 month period due to the coronavirus pandemic.
But analysts are still optimistic on CARD stock as the consensus among Wall Street analysts have named Card Factory plc a “hold” stock. Which means that shareholders involved in the stock should keep their position and wait.
Which is why although hanging fire might be the best position for now with CARD stock, keep this undervalued stock on your radar especially once the third lockdown measures have been lifted across the UK.
9. Legal & General Group (LGEN)
Legal & General Group plc provides insurance products and services worldwide. A British multinational company headquartered in London has made a solid name for itself over the years.
Offering a range of segments from Legal & General Retirement, Investment Management, Capital and Insurance along with being involved in various other areas including real estate investment, commercial lending and more.
A big shining positive for the company which draws in investors is for its dividend.
LGEN is known to be a top and reliable performing dividend payer with a dividend yield of 6.80% which is above the industry average and is in the top 25% dividend payers in the UK market.
The company has also announced their future plans for growth over the next five years which will add significant growth to the company and to investors with their dividend.
Alongside, Legal &General has a healthy financial outlook, however, it does carry debt that is relatively high as its debt-to-equity ratio is at 59% which has been reduced impressively from 202% over the past 5 years, which is a big take away to keep in mind when looking at a company's statistics.
In light of this, the company's debt does not pose a significant effect on the company as it also has the cash flow to cover its debts.
Analysts have predicted a 10.4% growth per year for the company as new plans have been set to be made to establish further growth over the coming years.
As its share price 268.80 per share and with its route to further growth, makes this stock an undervalued stock to look to add to your portfolio and a good stock to bring in regular income.
10. Redrow (RDW)
Market Cap - £1.9b
The last stock to come in on the list of 10 undervalued stocks is Redrow.
Redrow, one of the UK’s largest property housebuilders in the country and yes is potentially undervalued stock.
Founded back in 1974 the property company has since gone from strength to strength as the company continues to build and continues to seek new opportunities for expenditure.
Analysts are jumping heavily advising that at present this stock is on to be a part of and have given the stock a current ‘buy’ rating. And once you take a look at the company's financial reports in further detail you can see as to why.
Although the company's net profit margins are lower than last year at 8.4% the company is still set in a positive light moving forward with its other financial results.
Earnings are being forecast to grow by 21.18% over each year and its share price has been deemed overall to be stable with an 8% volatility rating.
Currently trading below its fair value at £5.52 the company is looking to be in a good position to be taken advantage of to become a part of the stock.
Especially with the company's balance sheet being strong too with a big advantage being that the company has a positive cash flow position which means that the company's debt is covered well.
On the topic of the company's debt, it has deemed satisfactory as its debt-to-equity is 10.5% which has decreased by 14.2% over the past 5 years.
There is no doubt Redrow stock is looking strong as an undervalued stock. It is one to look to add to your stock collection. As the sales keep driving forward and as the surge in the housing market continues, we as well as analysts predict that the drive and demand is still apparent for the company who is set to gain value and growth over the coming year and furthermore years to come.
How to Invest in Undervalued Stocks?
Once you have chosen and carried out all the relevant research required, then it's time to look at the next steps in the process of how to invest in undervalued stocks.
Finding a suitable broker is one of the most vital key parts of your trading journey.
You will find and be able to see with your own eyes that there are many trading platforms and brokers out there available for you. However, it's worth your time and money to choose wisely as picking the wrong broker could potentially be costly.
When researching your chosen platform look for key elements that stand out such as low or no commission fees along with regulated licenses that are held by the brokers or on the online trading platform. These licenses can be found on the bottom of the website pages and for individual brokers these should also be available at your disposal.
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The trading platform has access to the best stocks on the market and all with the added benefit of a zero commission-free basis which is why eToro is a perfect platform suited for beginner investors.
Along with having access to the UK market it also covers 16 of the international markets if you wish to look at expanding in the future or if you wish to do so straight away.
To open an account all you need to do is find a suitable broker and set up an account, it is as quick, simple and as easy as that. Once you have successfully opened an account it is at your leisure as to when you wish to start trading.
The platform's simple and easy layout makes your journey into trading smoother. If you feel that you are ready to head straight into investing all you need to do is choose your chosen undervalued stock and invest an amount.
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- Undervalued stocks are stocks which are priced below what their instinctive value is truly worth.
- Undervalued stocks can be extremely profitable if chosen and researched correctly.
- Researching is essential when conducting further investigations into the top UK undervalued stocks, which is why it is advised to take as much time as you need before investing.
- Along with the chosen top 10 undervalued stocks there are more great undervalued stocks on the market for you to invest in.
- Choosing the right broker is a vital key part of your trading journey, take time to research wisely before choosing a broker or an online trading platform.
- Always invest within your financial means.
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