Liberum singles out three 'cheap' UK stocks to buy

29th Aug 2023 08:40

(Sharecast News) - Liberum Capital has identified ConvaTec, Drax and Hays as three "cheap" stocks that should be considered by value-oriented investors.

"It is well known that European stock market valuations are lower on average than in the US," said analysts Joachim Klement and Susana Cruz in a research report on Tuesday.

"Adjusted for differences in sector composition, the European stock market currently trades at a 23.5% discount to the US, while the UK market even trades at a 27.7% discount. Both are very large discounts compared to what we have seen even in the post-GFC [global financial crisis] era of US megacap dominance."

The analysts took a deep dive into 110 different subsectors to find out which European stocks trade at the biggest discount - on a price-to-earnings ratio basis - to their US peers.

While ConvaTec, Drax and Hays don't trade at the biggest discounts to US peers in their coverage, Liberum highlighted these three stocks with a 'buy' rating.

For ConvaTec, the medical products group focused on therapies for the management of chronic conditions, the stock trades at 19.8x forward earnings, a 23% discount to the average multiple of 25.7x for medical supplies peers on the S&P 500. Liberum gives the shares a target price of 276p, compared with Friday's closing price of 230.2p.

Power station business Drax trades at just 4.3x earnings, a 71% discount to S&P 500 electricity peers (14.8x). The price target for Drax is set at 940p (Friday's close: 559.6p).

Recruitment firm Hays trades at 11.2x earnings, a 38% discount to the business training and employment agency sector on the S&P 500 (18.1x). The price target for Hays is set at 125p (Friday's close: 105.3p).

Looking at Liberum's wider coverage, the UK stocks with the biggest discounts to their industry peers on the S&P 500 are: JD Sports (-57%), Beazley (-58.9%), TUI (-59.9%), IG Group (-62.5%), Tritax Big Box REIT (-72.5%) and Energean (-72.6%).