Value stocks

Why Asos, Centrica and Imperial Brands are value stocks to watch

OWith long-term potential and a low price-to-earnings ratio, Imperial Brands, Asos and Centrica are three undervalued UK stocks to watch as the market spins from growth to value.

As interest rates rise to rein in rising inflation, many investors are choosing to switch from growth stocks to value stocks, such as Asos. [ASC.L]Centric [CNA.L] and imperial marks [IMB.L].

If the war in Ukraine drags on, it could delay further interest rate hikes, which could send money flowing back into growth stocks. But with stock markets in flux amid heightened economic and political crises, many investors are turning to companies with long-term growth potential and a low price relative to their earnings. The value of growth stocks declines as interest rates reduce the value of companies’ future cash flow projections.

Although the rotation from growth to value is underway, a number of UK stocks are still heavily discounted. Shares of Imperial Brands, Centrica and Asos have all trended lower since the start of the year, but strong performance and analyst sentiment suggest these stocks are undervalued.

Are Asos shares ready to be bought?

Asos’ share price has been dragged lower in recent months, mainly in part due to slower sales growth caused by ongoing supply chain issues caused by the omicron variant of Covid-19. 19. The title fell by 31.9% since the beginning of the year at the close of April 6.

Reports from April 4 suggested the company was being targeted by short sellers, with Boohoo [BOO.L]. Hedge funds believe Asos’ share price has fallen further, especially as online retail darlings of the pandemic have lost their luster.

While pre-tax profits for 2021 only rose 36%, compared to a 275% rise in the first half of the fiscal year, there are reasons for optimism for the company. For one thing, Asos recently launched a partnership with Nordstrom [JWN] bring Topshop clothing to physical stores in the United States. This is a clear indication that he wants to increase bricks and mortar sales.

Analyst sentiment is generally positive, with nine “buy” ratings and four “sell” ratings, according to market beat The data. The consensus price target is 3,913p, up 140% from the April 6 closing price.

Centrica stock gains in March

Full year 2021 results released on February 24 showed the owner of British Gas is getting his house in order and is now a leaner business following its restructuring.

Although the earnings didn’t help fuel Centrica’s share price, the conflict in Ukraine and the company’s decision to end its deals with Russia have helped the stock gain 19% since it hit a year-to-date low of 67.66 pence on 7 March. The share price peaked at 84.78p on March 25, its highest since before the pandemic began.

Centrica could face headwinds in the short to medium term as consumers consider switching providers to save on their energy bills and offset the rising cost of living.

Hargreaves Lansdown analysts commented in a research note: “Centrica’s transformation has been a success so far, and we are impressed with how far it has come. But there is still a long way to go and the future is clouded by looming uncertainty. This tempered market expectations, with stocks trading below their long-term average, and gave us reason to remain cautious.

Centrica had five “buy” ratings and one “hold”, market beat the data shows. The consensus price target is 90.17p.

“Centrica’s transformation has been a success so far, and we are impressed with how far it has come. But there is still a long way to go and the future is clouded by looming uncertainty” – Analysts at Hargreaves Lansdown

Imperial Brands shares are still undervalued

Despite a strong performance in the 12 months to the end of September, with revenues and profits up slightly year-over-year, Imperial Brands has low multiples and can be considered heavily discounted.

Imperial Brands’ share price is up 3.3% year-to-date to 1,669p at the April 6 close. That’s 16.4% above its 52-week low of 1,434.23 pence set on March 7. However, the stock has yet to recover to its pre-pandemic level.

“With debt under control, earnings growth is the primary area of ​​focus. Price increases over the past year may have supported sales despite declining volumes,” Hargreaves Lansdown analysts wrote in a statement. research note.

They point out that a key reason for Imperial Brands’ valuation is that many institutional investors struggle to reconcile tobacco stocks with their portfolios. That means “stocks are rated lower than the industry outlook actually warrants.”

Key to Imperial Brands’ investment case is its dividend yield, which was 8.9% in 2021.

“In the medium term, Imperial can likely continue to extract more money from fewer smokers,” the analysts continued, noting that next-generation products will be critical to its success. “As things stand, it doesn’t give us a lot of confidence. A prospective dividend yield of 9% makes uncertainty more acceptable. »

According to data from MarketBeat, the stock has three “buy” ratings, a “hold” rating and a “sell” rating.

Warning Past performance is not a reliable indicator of future results.

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