Value stocks represent a unique opportunity to snap up cheap shares with a view to earning potentially market-beating gains in the long term.
However, not all are wise investments, in my view. Two shares I recently considered are Kingfisher (LSE: KGF) and Vistry Group (LSE: VTY).
Here are my thoughts on both stocks.
I’d avoid
Personally, I wouldn’t buy Kingfisher shares at present. The home improvement firm, and owner of the popular B&Q and Screwfix brands, has had a tough couple of years.
When the pandemic hit and people had nowhere to go and more money in their pocket, DIY exploded in popularity and Kingfisher did well. I remember a couple of mini-projects I undertook, although I won’t comment on how they ended up.
Since that time, economic volatility has hurt performance and the shares. Over a 12-month period, Kingfisher shares are down 14%, from 267p at this time last year to current levels of 228p.
From a bullish view, the shares trading on a bargain price-to-earnings ratio of just over seven, and offering a dividend yield of over 5%, which is enticing. However, the yield has been pushed up by the shares falling.
Plus, interest rates won’t stay at their current heights forever and inflationary pressures are easing. This could result in more cash in consumers pockets and an appetite to once again start home improvement projects.
However, the ongoing uncertainty is off-putting for me. This is the primary driver behind my decision to keep an eye on the shares, rather than buy.
A prime example of the murky economic picture is when inflation unexpectedly rose last month. In turn, mortgage providers increased rates after murmurings of a potential drop.
I’ll be watching with keen interest and may revisit my position on Kingfisher shares soon.
I’d buy
I’d happily add Vistry shares to my holdings when I next have some spare cash to invest. The house builder – like its peers – has also had a difficult time recently due to the volatility mentioned earlier. Soaring inflation and higher interest rates have impacted completions, sales, and margin levels.
However, increased sentiment has pushed the shares up by 27% over a 12-month period, from 796p at this time last year to current levels of 1,018p.
I reckon the housing stocks have the ability to provide excellent growth and returns in the longer term. This is related to the UK population growing rapidly, and the fact that demand for housing is outstripping supply.
With that in mind, Vistry’s valuation on a P/E ratio of 11 and dividend yield of 5.5% is attractive.
Similarly to Kingfisher, ongoing economic pressure could present problems in the short to medium-term. This includes ongoing inflationary pressures which could keep costs high and put pressure on margins.
However, the long-term picture is much more appealing for Vistry and I’m more bullish on its prospects compared to Kingfisher.
Generally speaking, house buyer appetite is improving, despite a rough 12 to 18 months or so. I reckon now could be a good time to buy Vistry shares before they continue their ascent. They may become too expensive for me to consider if I wait too long.
The post Looking for value stocks? Here’s 1 I’d buy and 1 I’d avoid! appeared first on The Motley Fool UK.
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Sumayya Mansoor has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
