As a value investor, I look to buy shares when they trade below their intrinsic business value. Right now, I think there are some great opportunities in UK stocks.
Rolls-Royce Holdings has been leading the FTSE 100 since the start of the year and the stock is up 66% over the last 12 months. But it’s not the engine manufacturer that’s catching my eye.
Ibstock
I think that brick manufacturer Ibstock (LSE:IBST) could be a great long-term investment. The stock is up around 7% since the start of the year and I’m looking to buy it before it goes any higher.
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Unlike Rolls-Royce, the company has been buying back shares and investing to boost its production capacity. I expect this to pay off over the next few years.
At today’s prices, Ibstock shares don’t look expensive to me. The stock trades at a price-to-earnings (P/E) ratio of 11 and pays a dividend with a yield of 5%.
Ibstock’s biggest risk is competition – there are a number of UK brick companies. By contrast, the capital-intensive, technical nature of aerospace engineering protects Rolls-Royce from potential disruptors.
I don’t see this as a significant cause for concern, though. Around 30% of bricks used in UK building are imported, due to demand outstripping supply.
Even with existing manufacturers increasing capacity, there’s still an expected shortfall of 11%. As a result, I think that the market is big enough to allow all of the participants to do well.
Ibstock has a solid balance sheet and a leading position in a market where demand looks set to outstrip supply for some time. I think that this makes the stock an attractive investment proposition.
Barclays
Barclays (LSE:BARC) all look like good value at the moment. The stock is up 3% since the start of the year and I’m looking to add it to my portfolio later this month.
Unlike Rolls-Royce – and unlike other FTSE 100 banks – I think that Barclays is well positioned to cope with any macroeconomic environment. That’s part of the attraction for me as an investor.
The company combines a retail business with one of the largest investment banking operations in Europe. This gives it the opportunity to do well whether interest rates are high or low.
In 2022, Barclays benefited from rising interest rates in its retail operations. The bank’s net interest income (interest received on loans minus interest paid on deposits) grew by 13%.
When rates were lower during the pandemic, the investment banking operations came to the fore. I think this means Barclays can offer some relative stability during any economic climate.
The risk with the business comes from regulation. UK regulation is stricter than elsewhere in Europe and there’s a risk that this could limit the company’s profits in future.
As I see it, though, this risk is more than offset by the current share price. The stock trades at a P/E multiple of around 6 and has a dividend yield of 4%.
Compared to Rolls-Royce, I think Barclays offers a much more stable investment proposition. That’s why I prefer it at today’s prices.
