The world holds its breath in anticipation as a nail-biting US election looms, threatening market volatility. UK shares have not escaped the effects, with some suffering notable declines in recent weeks.
Over this past weekend, I took stock of the FTSE 100 shares in my portfolio. I found three that I feel are trading significantly below their fair value.
Here, I’m going to highlight why these valuations look attractive to me. If I weren’t already invested, I’d consider buying these big names in November.
Taylor Wimpey
Taylor Wimpey (LSE: TW) is one of the most affordable housebuilding stocks on the FTSE 100. Now at £1.47, the share price has fallen 13% since this year’s high of £1.68.
Despite the housing market’s sensitivity to inflation, it benefits from strong demand for affordable housing in the UK. With supportive government policies (like the Help to Buy scheme) and an ongoing housing shortage, housebuilders remain well-positioned for long-term demand.
It also has a solid dividend history, which is attractive for income-focused investors.
The main downside is the exposure to interest rates, which impact mortgage affordability and, consequently, demand for new homes. Rising costs for materials and labour could also pressure profitability.
It’s currently trading at 32.8% below fair value using a discounted cash flow (DCF) model, with a price-to-earnings (P/E) ratio of 21.2.
Lloyds Banking Group
Lloyds (LSE: LLOY) fell last week after an unexpected development in the ongoing controversy about the misselling of payment protection insurance (PPI). The price has already begun a recovery but remains near the lowest it’s been in almost six months.
Despite economic challenges, its extensive branch network and established brand give it a competitive edge. As one of our largest retail banks, it has a strong foothold in the domestic market. Plus, while interest rates remain high, it continues to benefit from better profit margins on lending.
However, exposure to the UK economy means Lloyds is sensitive to economic downturns, including potential increases in bad debts if customers struggle to repay loans.
It has a low P/E ratio of 7.5 and is undervalued by 55.3% based on a DCF model. It also pays a consistent dividend with a 5.3% yield, which may appeal to income-focused investors.
Reckitt Benckiser
Reckitt Benckiser (LSE: RKT) is often seen as a reasonably priced defensive stock, particularly for those looking at consumer staples and healthcare. It isn’t ‘cheap’ in price like Lloyds or Taylor Wimpey but it could deliver attractive returns in the coming months.
Like many companies, Reckitt has been hit by inflation and supply chain issues, particularly in terms of raw materials and transportation. These rising costs could pressure profit margins if the company cannot pass on costs to consumers.
This year it faced a high-profile legal battle in the US related to its Enfamil infant formula, causing the price to fall considerably. However, last week a Missouri state court jury cleared the company of liability.
The price is now recovering and is likely to continue, with earnings forecast to grow 11.3% per year going forward. Return on equity (ROE) is estimated to reach 28% in the next three years.
The post 3 heavily discounted UK shares to consider buying in November appeared first on The Motley Fool UK.
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Mark Hartley has positions in Lloyds Banking Group Plc, Reckitt Benckiser Group Plc, and Taylor Wimpey Plc. The Motley Fool UK has recommended Lloyds Banking Group Plc and Reckitt Benckiser Group Plc. 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.
