I’m on the hunt for cheap UK stocks that could perform well in 2023 and beyond.
One technique that can help to identify potential bargains is to look for stocks that are trading at their lowest level for at least one year.
Companies in this situation may have some problems — or they may simply be out of fashion and oversold. Changes in investor sentiment mean that it’s quite common for share prices to go too high or too low at different points in the market cycle.
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I’ve been hunting for UK share prices that look too low to me. Here are my top three picks to buy now.
Vodafone Group: 9% yield
Telecoms group Vodafone operates some of the largest mobile networks in Europe and Africa.
However, this group is struggling with sluggish growth and a sizeable debt pile. Investors have been dumping Vodafone shares, which are now trading at levels last seen 20 years ago.
A brutal sell-off has left this FTSE 100 stock with a 9% dividend yield. Is this payout sustainable? I think things could get tight, but my feeling is that the group won’t want to cut the payout.
Chief executive Nick Read stepped down at the end of last year. His replacement will be expected to improve the group’s performance, possibly by splitting it up.
This business has disappointed investors before, but I think there’s value here. I reckon it could be a good time to buy Vodafone.
Computacenter: on my buy list
I’ve admired FTSE 250 IT services group Computacenter (LSE: CCC) for years. I think it’s an excellent business with strong management and a sizeable share of a growing market.
The stock has often looked expensive to me, but with recession looming in the UK and the work-from-home boom fading, its share price has come back down to earth.
Right now, shares in this business are trading on just 12 times forecast earnings, with a 3.5% dividend yield. For a company that consistently generates a 20%+ return on equity, I think that’s probably too cheap.
The risk is that the firm’s large corporate and public sector clients may cut their IT spending in a recession.
However, on a long-term view, I think spending on IT and cyber security will continue to rise.
In my view, Computacenter still has plenty of room to grow. This stock is on the shortlist to buy for my own portfolio.
James Halstead: a quality family business
My final choice is James Halstead (LSE: JHD). This AIM-listed firm manufactures and supplies floorcoverings to customers all over the world.
It’s best known for its Polyflor vinyl flooring product. Past customers have included cruise ships, hotels, hospitals and even the Scott Base in Antarctica.
This business is still family-controlled and is run by Mark Halstead, who’s the great-grandson of the firm’s founder.
Profit margins are above average and there’s no debt. The group’s dividend hasn’t been cut for more than 30 years — and currently offers a tempting 4.3% yield.
Fears of a demand slump this year have sent Halstead’s share price tumbling. I think this could be an opportunity for long-term investors to pick up some stock at a reasonable price. I’m certainly tempted myself.
