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Who doesn't love a bargain? Well, I've seen quite a few UK stocks trading at or near their 52-week lows at the moment.
But are these simply “value traps” that you should avoid?
Burberry
It's fair to say that the luxury brand Burberry (LSE: BRBY) is struggling. High inflation and the resulting cost of living crisis have hit sales worldwide.
These headwinds have more than halved the company's valuation, pushing the stock to levels not seen since… 2010!
Is it a bargain? A price of 16 times expected earnings is a bit high, but it is lower than Burberry’s average valuation over the past five years (21 times earnings). It is also hard to deny the iconic nature of the brand or the potential for further growth in increasingly affluent markets such as China.
Assuming inflation doesn't spike again, the worst might be over. However, the significant interest shown by short sellers in stocks suggests otherwise.
I'll wait to see what the next trading update (due later this month) says before deciding whether Burberry is simply a basket case.
Diageo
Another major company facing difficulties as a result of the fragile economic environment is the beverage giant. Diageo (LSE: DGE). Like Burberry, the shares of this FTSE 100 Index Giants are touching 52-week lows.
Not surprisingly, in tough times, discretionary spending on things like alcohol has always tended to decline. But there is growing evidence that youth drinking is on the decline.
On the other hand, Diageo owns some of the most recognized and popular premium beverages in the world, including Johnnie Walker whiskey and Captain Morgan Ron. It is also a truly global company, selling its drinks in almost 180 countries. This surely makes it more defensive than most publicly traded companies?
At 17 times earnings, the stock is well below its five-year average valuation (24 times earnings). There is even a 3.1% dividend yield on offer for those willing to wait for a recovery.
Of course, no one knows for sure whether such a recovery will come, but I think it is more likely to be a bargain in plain sight than a bargain you should take advantage of as soon as you have the money.
Mony Group
One last action worth mentioning is one I already have: Comparison Website Specialist Mony Group (LSE: MONY).
Unfortunately, the stock hasn't performed as well as I would have liked in recent years because the energy market is so uncompetitive. Such an environment was never going to be ideal for the owner of Moneysupermarket.com, who earns a commission when people switch suppliers through his site.
Still, the stock is trading at just 13 times expected earnings. That seems like a great value for a company that generates much better returns on the money it invests than most companies on the market. Margins are sky-high, too.
At this point, I must be careful about bias. A larger-than-expected rise in utility prices later in the year could prolong the pain for both investors and consumers.
However, the lack of interest from short sellers is encouraging. If the economic outlook improves (perhaps as a result of interest rates finally being cut), I expect to reap the rewards.
Meanwhile, stocks are yielding a hefty 5.5%.
