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UK shares have risen strongly in 2024 after years of underperformance. He FTSE 100 and FTSE 250 They have risen by mid- to high-single-digit percentages so far as investors have piled into cheap stocks.
Some analysts believe this could mark the start of a bull run for British shares. In fact, those at Edison believe that UK stocks now offer a “once in a generation” chance.
Here's why.
40% discount
Years of economic and political tension in Britain have undermined interest in domestic stocks. This has led to impressive discounts that are attracting the attention of savvy investors and US funds seeking diversification.
Analyst Neil Shah notes that British stocks “are trading at their deepest discount to global peers in more than three decades“. He rates this discount at a notable 40% and notes that UK shares now trade on a forward price-to-earnings (P/E) ratio of 10.5 times.
This is well below, say, the 26 times forward multiple for US stocks.
Shopping heats up
However, it is not just the low price of UK shares that leads Shah to predict a bright new era. Other factors include:
- Improving economic conditions
- Growing interest from foreign investors
- Pension reforms impacting funding allocations
- Rising acquisition activity supports valuations
Last month's trading activity suggests a seismic shift in investor sentiment is already underway.
Why, you ask? Well, according to Shah, UK stocks enjoyed their first net inflows in November for the first time in a long time. 41 months.
An impressive small cap
As the report suggests, the London Stock Exchange is inundated with brilliant offers as we head into the New Year. So I'm putting together a list of the best value UK shares to buy next time you have extra money to invest.
Topps Tiles (LSE:TPT) is a penny stock that's on my radar for 2025. It's a stock that Edison's own analysts have put in their “showcase” of attractive British stocks.
The phrase “penny stock” conjures up images of high-risk (and often volatile) companies. But this retailer is no small fish. It is the UK market leader in floor and wall coverings, and has a rare opportunity to boost profits if, as Edison hopes, the UK economy begins to recover.
Additionally, Topps has a substantial structural opportunity in government plans to boost housing construction levels. Up to 1.5 million new homes could be built between now and 2025.
The retailer's track record of consistently outperforming the market is also very attractive to me. While revenue fell 5.4% in the 12 months to September, this was significantly better than the 10% to 15% it estimated for the broader market.
Today, Topps' share price offers excellent overall value. It trades on a forward price-earnings ratio of 10.3 times, while its corresponding price-earnings growth (PEG) multiple is just 0.2.
Any reading below one indicates that a stock is undervalued.
Finally, the dividend yield on Topps stock is a hefty 7.4%. Earnings may disappoint in the event of a prolonged economic downturn. But all in all, I still think it's one of the attractive value stocks in the UK.
