Every month, we ask our freelance writers to share their top ideas for value stocks with investors — here’s what they said for November!
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Associated British Foods
What it does: Diversified food, ingredients and retail group known for famous brands like Jordan, Twinings and Primark.
By Mark David Hartley. Associated British Foods (LSE: ABF) is a food and ingredients group and the world’s second-largest producer of sugar and baker’s yeast. It’s also the owner of the retail clothing brand Primark, which has been doing well lately. As an international firm, it risks losses from exchange rate fluctuations and regulations related to food safety, labour standards, and environmental protection. It’s also in a tough industry, with competitors like Premier Foods, Tate & Lyle, and H&M vying for their share of the market.
I think it’s a good value stock because it has low debt, a clean balance sheet, and a reliable dividend with a 2.5% yield. The price grew 88% in the past two years – recovering all pandemic-era losses – yet it’s still undervalued by 17% based on future cash flow estimates. In the next three years, earnings per share (EPS) and revenue are expected to grow by 25% and 10% respectively.
Mark David Hartley does not own shares in any of the companies listed.
What it does: Central Asia Metals operates Kazakhstan’s Kounrad copper mine and the Sasa lead-zinc asset in North Macedonia.
By Royston Wild. Copper prices have fallen sharply in the second half of 2024 as demand worries have intensified. This downtrend could continue if core economic data from the US and China continues to underwhelm.
This has obvious risks for copper producer Central Asia Metals (LSE:CAML). The business produces the red metal in Kazakhstan, alongside other base metals in North Macedonia.
Yet I still find the value this AIM stock offers hard to ignore. It trades on a forward price-to-earnings (P/E) ratio of 9 times. Meanwhile, its price-to-earnings growth (PEG) multiple is 0.3, well below the accepted value watermark of 1.
Central Asia Metals provides a bumper 9.6% dividend yield for this year, too.
As a long-term investor, I’m prepared to accept a little near-term turbulence if the outlook further out is bright. And I think Central Asia Metals’ profits could leap as the energy transition drives copper demand higher.
Analysts at McKinsey & Company forecast global copper consumption to surge 30% between 2023 and 2035. At the same time, supply is set to lag as new projects fail to start up and output from existing assets dips.
Royston Wild does not own shares in Central Asia Metals.
JD Sports Fashion
What it does: JD Sports Fashion is a global retailer of sports fashion brands.
By Paul Summers: There’s not a lot of love for retailer JD Sports Fashion (LSE: JD.) among investors right now. The stock has seriously lagged the FTSE 100 index in 2024 so far.
Not that this comes as a complete surprise. A cost-of-living crisis was never going to be great news for consumer cyclical stocks. The fact that one of the company’s major brands – Nike – is struggling only worsens things.
However, adjusted profit of £405.6m for the six months to 3 August beat market expectations. With the all-important festive shopping season on the way, the second half of JD’s financial year might prove equally reassuring.
Sure, a rebound in inflation could bring out the sellers again. But the valuation of just 10 times FY25 earnings (as I type) looks too low to me considering JD’s multi-brand, multi-channel offering and rapid overseas growth.
Paul Summers has no position in JD Sports Fashion or Nike.
NWF Group
What it does: NWF is a distributor of fuel, food and animal feeds primarily in rural parts of Britain.
By Christopher Ruane. Shares in NWF Group (LSE: NWF) have fallen by 45% since last Summer and it now trades on a price-to-earnings ratio of 8.
But the company’s most recent trading statement affirmed that the current financial year has started in line with management expectations.
One reason for the decline is weakening business performance. Last year saw revenues fall 10% and pre-tax profit by 35%. Weak demand in the fuel market is an ongoing risk to the company’s performance.
But I think the share price fall looks overdone. NWF has a sizeable customer base and limited competition in some areas. Although profit margins are thin, it remains profitable and last year continued its recent pattern of annual dividend increases.
The yield of 5.5% is attractive in my view. I expect medium-term growth prospects could be limited, but like both the income prospects and what I see as a cheap valuation.
Christopher Ruane owns shares in NWF Group.
Zigup
What it does: Zigup operates van hire businesses in the UK and Spain. The group also provides accident repair and claims management services.
By Roland Head. When supply chain problems made it hard to buy new vans in 2022 and 2023, Zigup (LSE: ZIG) profited from soaring used van prices.
The group’s hire fleet feeds into its used van business, supporting bumper profits on sales of ex-rental vans. However, the shares have drifted lower this year as management have warned of a “normalisation” of used vehicle prices.
The risk here is that the normalisation may turn into a slump. I can’t ignore the possibility.
However, Zigup’s Northgate van hire business is a market leader and has been around a long time. I suspect they’ll manage this transition successfully.
In the meantime, the shares trade on a modest rating of seven times 2024/5 forecast earnings. Zigup also offers a useful 7% dividend yield, well covered by earnings.
I think the balance of risk and reward looks favourable. Zigup is on my radar as a possible value buy.
Roland Head does not own share in Zigup.
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