UK share prices might have rallied in recent weeks on solid Covid-19 vaccine news. But in my opinion there are still plenty of top stocks that are trading much too cheaply today. And this gives bargain hunters an exceptional investing opportunity.
The boffins over at UBS agree that UK shares look pretty undervalued right now. They explain that “the UK is currently our most preferred equity region” as Britain benefits “from a relatively high exposure to stocks and sectors that have so far lagged the recovery”.
Even in a no-deal Brexit scenario, UBS says that “we expect the UK market, which trades at a discount to global stocks, to outperform whatever the outcome”. Indeed, it said that while corporate earnings might not recover to their pre-pandemic levels until 2022, this is more than reflected within current valuations and that it expects British stock to “perform well”.
I myself have gone bargain hunting for UK shares during the economic meltdown of 2020. And despite the stock market rally of recent months, plenty of top stocks still look quite undervalued. Let me talk you through one dirt-cheap stock I’m thinking of adding to my Stocks and Shares ISA.
A bargain-basement beauty
Discount retailer B&M European Value Retail (LSE: BME) has seen its share price perform strongly in 2020. It’s actually 18% more expensive than it was on January 1. Yet on paper, the FTSE 100 share still looks dirt-cheap at today’s levels. City analysts reckon earnings here will double in the fiscal year to March 2021. And this leaves B&M trading on a low price-to-earnings (P/E) ratio of 13 times.
Retailers that offer their wares at market-beating prices always thrive in difficult economic times like these. Fortunately for B&M, it appears that the downturn in the UK could last long after the current financial period has ended too. Office for National Statistics data today showed domestic GDP growth slowed to 0.4% in October from 1.1% in September.
The disappointing result has fed speculation that economic conditions won’t return to pre-pandemic levels until 2022 at the earliest. And the recovery could take even longer than this should last-minute talks to avoid a no-deal Brexit flounder.
A top UK share for these turbulent times
In early December’s trading update B&M said that it had enjoyed “a strong start” to the second half of the financial year. It said that customer numbers had grown in the first nine weeks and that like-for-like sales were running ahead of the first half. And as a consequence, the company raised its estimates for full-year adjusted EBITDA to a range of £600m to £650m. This compares with the analyst consensus forecast of £571m.
This share has a history of upgrading its profits forecasts. And this suggests that it could provide even better value than I suggest here. I see B&M as the perfect share for these uncertain times. And I’d happily buy it in my Stocks and Shares ISA today and hold it for years as store expansion continues.