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The art of buying value stocks is a difficult one to master. Spotting companies that are undervalued relative to their business fundamentals is easier said than done, but it can be extremely profitable.
After all, this has been the secret behind many notable investors’ stock market success, from the ‘Father of Value Investing’, Benjamin Graham, to his legendary disciple, Warren Buffett.
So, let’s look at three FTSE 350 shares that appear mispriced to me today.
Lloyds Bank
- P/E ratio: 6.48
- P/B ratio: 0.76
- Dividend yield: 5.16%
Starting with the FTSE 100 index, long-standing constituent Lloyds (LSE:LLOY) looks attractively valued to me. The bank is the UK’s largest mortgage lender, with around 26m customers.
Rising interest rates have caused broad stock market turbulence, but Lloyds shareholders will be pleased to note the positive effects this is having on the company’s net interest income. In Q1, pre-tax profit soared to £2.3bn year on year, up from £1.5bn in 2022. This comfortably beat the consensus City forecast of £1.95bn.
However, despite encouraging results, the Lloyds share price has fallen slightly this year. Worries about financial contagion stemming from the collapse of Silicon Valley Bank and Credit Suisse remains a dark cloud on the horizon.
But these fears might have created a buying opportunity, in my view. The bank appears sufficiently well-capitalised with a CET1 ratio of 14.1%. I already own Lloyds shares and I’ll continue to hold my present position, reinvesting my dividends along the way.
Marks and Spencer
- P/E ratio: 10.50
- P/B ratio: 1.07
- Dividend yield: 0.00%
The second value stock on my watchlist is FTSE 250 retailer Marks and Spencer (LSE:MKS). The M&S share price has soared nearly 30% this year and I still see plenty of upside potential ahead.
Granted, sticky inflation is a key concern that could limit further growth. In addition, despite some positive noises, there’s no confirmation yet that the dividend will be reinstated after shareholder distributions were paused in 2019.
However, the company has ambitions to expand its market share. The group plans to open 20 new stores this year. I’m hopeful the business can build on its promising Q3 results, which saw food sales rise 10.2% and clothing sales climb 8.8%.
M&S will release its full-year results on 24 May. Provided I like what I see in the numbers and if I have spare cash to invest, I’d enter a position in the stock.
Persimmon
- P/E ratio: 7.70
- P/B ratio: 1.25
- Dividend yield: 4.55%
FTSE 100 housebuilder Persimmon (LSE:PSN) completes the trio of value stocks I’d consider buying.
A 75% dividend cut and a 31% slump in forward sales by value might be enough to dissuade many investors from buying Persimmon shares. After all, wobbly house prices and the prospect of additional post-Grenfell fire safety costs make trading conditions challenging.
But I remain bullish on the company’s long-term prospects. Britain has an acute housing shortage and housebuilding is quickly becoming a lightning rod for political debate.
As proposals for green belt developments gain traction, the UK’s complex patchwork of planning rules could become more attractive for housebuilders like Persimmon. Plus, Britain’s housing market has a long history of defying gloomy predictions.
If I had spare cash, I’d buy this stock today.
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