Value stocks can be confusing. If I look at a stock and it seems strangely cheap, why is that? Have other investors seen something I’ve missed?
There are quite a few shares listed on the London market at the moment that I think potentially offer me great value considering the current price and their long-term prospects.
Here are two value stocks that I would happily buy for my portfolio right now, if I had extra money to invest.
GSK
pharmaceutical giant GSK (LSE:GSK) counts as a value holding, in my opinion, with its price-to-earnings (P/E) ratio currently at 9.
The company owns a large number of general and specialty drug brands. Thanks to its large number of product patents, it has a competitive advantage that gives it pricing power that it can convert into profits.
That helps finance a dividend. The yield currently sits at 4.3%, so owning these value stocks could provide a welcome boost to my passive income streams.
The power of its business model came into focus again last week. Based on its strong performance in the third quarter, the company raised its full-year earnings outlook.
All stocks have risks, of course, and GSK is no exception. For example, patent expirations could cause some revenue streams to dry up in the coming years. But the breadth of the company’s product portfolio, its proprietary technology, and its long-established sales channels make it attractive to me.
Having spun off its business from consumer brands such as haleonI think GSK has a clearer focus now than it has for a long time. Hopefully, the last strong quarter is simply a sign that a company is getting more into its groove.
British American Tobacco
I already have enough shares in Stroke of luck maker British American Tobacco (LSE:BATS). But I would be happy to buy more.
A key argument against this ratio is the long-term decline in smoking rates. That’s a big threat to revenue and profits. I also think it’s one of the reasons this value stock trades with a P/E ratio of only six.
But although cigarettes are losing popularity, they are still big business. I think there will be demand for cigarettes for decades to come. BAT’s global reach means it can still work even if individual markets experience a sharp drop in smoking rates.
In addition to that, it has a stable range of premium brands. That not only gives it pricing power for the 600 billion cigarettes it sells annually, but also positions the company well to develop its business in product lines such as vaporizers.
British American Tobacco is a free cash flow monster, with a dividend yield of 9.1%. It’s a UK value stock I’d happily own for decades!
