Image source: Getty Images
I’m looking for stocks in the UK to buy this month. The ‘Magnificent 7’ (Alphabet, Amazon, Apple, Metaplatforms, microsoft, NVIDIAand tesla) have been burned, but that’s why they look expensive.
By contrast, a couple of UK stocks have been falling out of favor with the market recently. However, I think investors are overreacting to some near-term headwinds, creating a buying opportunity.
Halma
He Halma (LSE:HLMA) share price fell almost 9% in September as the industrial conglomerate reported a slowdown in acquisitions. In my opinion, this seems like an overreaction.
With the stock trading at a price-to-earnings (P/E) ratio of 31, investors are clearly expecting business growth. And if this doesn’t materialize, the stock is likely a bad investment.
The stock has been floating for some time, but the underlying business has not. The share price might be at 2019 levels, but annual revenue has gone from £1.2bn to £1.8bn in that time.
When the stock was trading at a P/E ratio of 44 in 2019, it may well have been overvalued. But I think the underlying business has significantly achieved its stock market valuation since then.
In my view, the share price decline is a buying opportunity. So I think investors should seriously consider exploiting some unwarranted pessimism by buying stocks in October.
Forterra
After a 21% drop since January, shares of Forterra (LSE:FORT) are trading at their lowest level in five years. But in my opinion, the brick company’s long-term prospects are much better than the current price suggests.
The company has recently been investing in expanding its manufacturing capacity. But the slowdown in the housing market and the risk of a recession in the near future make this seem like a mistake.
But I think investors are being shortsighted in this regard. In my opinion, the weakness of the real estate market is a short-term issue for an industry that has strong long-term tailwinds behind it.
As a result, I expect the company’s investments to perform well over time. Returns may be a few years away, but I don’t see the UK’s structural housing shortage going away any time soon.
Warren Buffett teaches that the stock market is a device for transferring wealth from the impatient to the patient. Over time, I think Forterra stock could be a great long-term investment at current prices.
contrary investment
Tesla and the rest of the Magnificent 7 are big businesses, but their stock prices reflect it. That’s why I find it difficult to see upside for investors in these stocks right now.
I think there are better opportunities in stocks that have fallen out of favor with the market lately. This is the case with both Halma and Forterra.
In both cases, it seems to me that investors are overreacting to some short-term issues. That’s why they’re both on my list of stocks to buy this month.
