Following in the footsteps of great investors like Benjamin Graham and Warren Buffett, a number of our contractors are always on the lookout for quality value stocks to snap up…
Among these potential hidden gems is a British-listed company that claims the title of the world’s largest publicly listed hedge fund…
Aston Martin Lagonda
What it does: Aston Martin is a UK-based car manufacturer, traditionally focused on the sportier end of the market.
By Dr James Fox. Investing in Aston Martin (LSE:AML) has been something of a rollercoaster ride. The stock has surged on things as trivial as Fernando Alonso’s impressive showing in F1 practice — for the racing team which shares the same name but is not the same business — and has fallen on concerns about capital raises.
Aston Martin is saddled with £750 of debt, and may face cash flow issues as it moves towards profitability while simultaneously funding new model development and electrification.
While Aston isn’t expected to turn a profit until 2025, it’s currently trading at 19.4 times 2025 earnings. That’s certainly not expensive by the sector’s standards — Ferrari trades around 60 times earnings.
And despite a slowing global economy, there’s no sign that the super rich will bear the brunt of the challenges. I already have a position in this value stock, but at the current price, topping up is very tempting.
James Fox owns shares in Aston Martin Lagonda.
Babcock International Group
What it does: Babcock International Group provides engineering and training services in the UK, Australasia, Canada, France and South Africa.
By Royston Wild. Demand for defence stocks is soaring as geopolitical tensions rise and arms spending subsequently increases. The Institute for Strategic Studies (IISS) — which says global military spending rose 9% in 2023, to $2.2trn — expects it to rise to fresh record highs again this year.
At 466p per share, I think purchasing shares in Babcock International Group (LSE:BAB) could be a cost-effective way to get exposure to this recovering industry. Today it trades on a price-to-earnings (P/E) ratio of 11.2 times for the new financial year beginning April 2024.
By comparison, FTSE 100-quoted BAE Systems trades on a forward multiple of 18.2 times. And fellow FTSE 250 share Chemring Group changes hands on a P/E ratio of 18.6 times.
Like its industry peers, Babcock is enjoying strong earnings growth as the West steadily rearms. Underlying operating profit rose 27% during the six months to October. And its contract backlog improved to a healthy £9.6bn over the period, providing solid visibility for future revenues.
Royston Wild does not own shares in Babcock International Group.
James Halstead
What it does: The company owns a portfolio of brands that manufacture flooring used in almost all industries across Europe.
By Oliver Rodzianko. James Halstead (LSE:JHD) has a lot going for it, in my opinion.
With a median price-to-earnings (P/E) ratio of 25 over the past 10 years, its ratio of 19.5 right now is favourable.
While its value may not be low compared to a construction industry median P/E ratio of 15, it is low for the company in question. Therefore, it remains a value investment.
It has a mighty strong balance sheet, including 71% of its assets balanced by equity. Also, it has a net margin of almost 14%; there’s a lot for me to love.
However, there are risks, including that its gross and operating margins have been declining for over five years.
Also, it has been paying out 76% of its earnings in dividends. That’s nice for passive income investors, but it might not be sustainable.
Nonetheless, at £3.20 a share, this one looks like a bargain to me!
Oliver Rodzianko does not own shares in James Halstead
Legal & General
What it does: Legal & General is a financial services provider that specialises in pensions and retirement products
By Christopher Ruane. With a price-to-earnings ratio of around six, Legal & General (LSE: LGEN) certainly meets my definition of a value stock. It is solidly profitable and last year reported £2.3bn in post-tax profits.
That helps fund a healthy dividend. The yield on this FTSE 100 share is currently 8.0%. Dividends are never guaranteed but the firm has set out plans to grow its payout this year. I think further dividend rises are likely if the business continues to perform soundly.
Will it?
One risk I see is a global recession hurting market returns and leading customers to withdraw funds. That could reduce both revenues and profits.
But with its iconic umbrella logo, widespread brand name recognition, large customer base and deep financial expertise, I see Legal & General as an attractive share to own in my portfolio. The current share price looks like good value to me.
Christopher Ruane does not own shares in Legal & General.
Man Group
What it does: Man Group is an investment manager, and the world’s largest publicly listed hedge fund.
By Alan Oscroft. I watched Man Group (LSE:EMG) before the pandemic sent the shares down. But the way the price has soared since 2021, I regret not buying while they were super cheap.
But would I buy today, even after that big rise?
I think I would, at least judging by broker forecasts. If they’re right, the valuation could still be way too low.
With earnings set to rise strongly, we could be looking at a price-to-earnings (P/E) ratio of under eight by 2025 for this value stock. There’s a caution, though — the short-term P/E doesn’t always guide us too well when it comes to fund managers.
I’m also a bit concerned that the use of Artificial Intelligence (AI) in some of Man’s automated strategies might have boosted the shares too far. Folk do seem to jump on anything AI these days.
Still, that valuation, combined with 5% and rising dividend yields, puts this on my want list.
Alan Oscroft has no position in Man Group.
