Bargain British stocks with long-term potential
Three British stocks with plenty of long-term potential, according to Ian Lance, co-manager of Temple Bar Investment Trust
 
As value investors, we believe that the average market participant overreacts to short-term news – often related to earnings – which often has little or no impact on the long-run intrinsic value of the underlying business. We have also historically found underpriced securities in sectors deemed “uninvestable”. Many investors are still scared of banks thanks to the 2008 crisis, or avoid airlines because of the industry’s poor long-term record. If large parts of the market are unwilling to look at a particular industry regardless of valuation, then we are more likely to find mispriced securities.
Bargain British stocks to invest in
The tide went out for Standard Chartered (LSE: STAN) in 2014-2015 following the global commodities bust. The price/book value fell from three to 0.5. This led to a new (ex-JPMorgan) CEO, Bill Winters, and a long process of ridding the bank of bad loans, changing the underwriting culture and streamlining the sectors and countries the group operated in.
Today the company generates two-thirds of its profits from corporate, commercial and institutional banking and one-third from consumer, private and business banking. Over 80% of profits are generated in Asia, and the remainder in Africa and the Middle East. The bank is now sensibly run and the results have followed.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
 
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Return on equity last year was 10% and management’s goal is to reach 12% by 2026. The tier-1 capital ratio is now nearly 14%. The board is targeting net interest and other income growth of 5%-7% per annum, which they beat handily last year but would consider a healthy rate of longer-term growth. Despite all this progress, the stock trades at less than 0.7 times tangible book value.
International Airlines Group (LSE: IAG), the owner of British Airways, is one of the largest airline groups in the world and one of the “big three” European aviation operators. It operates in the passenger airlines, cargo and loyalty businesses; and it has a particularly strong foothold in the profitable transatlantic market. With its partner, American Airlines, IAG commands a 58% market share of traffic between Heathrow and the US.
Given the quality of the management team alongside the reinforced balance sheet, we view the company’s valuation as highly attractive. IAG has delivered impressive and growing profitability over the past decade, except in the Covid years. The shares trade on six times earnings and a free cash flow yield of over 10%. IAG has previously shown a willingness to return capital to shareholders, paying out 40% of today’s market value in dividends and buybacks in the five years to 2020. The company has just reinstated its dividend.
M&S is back in fashion
Marks & Spencer’s (LSE: MKS) fortunes have waxed and waned in the last two decades. They finally changed for the better in 2017 when Archie Norman was appointed chair. He had already turned around Asda. At M&S he replaced 50% of the senior management; remade the store portfolio, with brighter stores in better locations; and updated the clothing lines for modern and younger customers.
In food, the board kept the premium positioning but broadened the offering to suit a weekly shop. After years of neglect of the online arm, the board crafted a digital strategy that has made M&S one of the top online retailers in the UK. They took out about £300 million in annual operating costs at the same time.
These efforts started to bear fruit in 2023, when the group started taking market share in food, and clothing and profits exceeded forecasts. The stock has bounced from £1 to over £4 in two years but we think it is still undervalued relative to its long-run earnings potential.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.

- 
 Family investment companies explained: how the ultra wealthy shield their money from the taxman Family investment companies explained: how the ultra wealthy shield their money from the taxmanWealthy families are increasingly turning to family investment companies to keep more of their money away from HMRC – but what are these arrangements and how do they work? 
- 
 How to boost your pension pot as 35% of UK over 50s face huge retirement savings gap How to boost your pension pot as 35% of UK over 50s face huge retirement savings gapOver 50s are facing a later life with little to no funds - but there are steps you can take now to boost your pot. 
- 
 Yoshiaki Murakami: Japan’s original corporate raider Yoshiaki Murakami: Japan’s original corporate raiderThe originator of Japanese activism, Yoshiaki Murakami, was disgraced by an insider-trading scandal in 2006. Now, he's back, shaking things up 
- 
 Cash in on the vast growth potential of the companies electrifying the world Cash in on the vast growth potential of the companies electrifying the worldOpinion Martin Todd, portfolio manager, head of sustainable equities, Federated Hermes, highlights three electrification companies where he'd put his money 
- 
 Galliford Try has firm foundations for strong growth Galliford Try has firm foundations for strong growthBuilder Galliford Try has a finger in a wide range of pies, notably important work in the public sector 
- 
 Card Factory is a stand-out small-cap going cheap Card Factory is a stand-out small-cap going cheapIn a digital world, we still value the personal touch. That’s good news for Card Factory, whose unique business model is suited to weather all economic storms 
- 
 8 of the best smallholdings for sale now 8 of the best smallholdings for sale nowThe best smallholdings for sale – from a medieval cross-passage farmhouse in Taunton, Somerset, to a former farmhouse with an orchard in the Welsh Marches 
- 
 How much gold does China have – and how to cash in How much gold does China have – and how to cash inChina's gold reserves are vastly understated, says Dominic Frisby. So hold gold, overbought or not 
- 
 How to invest in undervalued gold miners How to invest in undervalued gold minersThe surge in gold and other precious metals has transformed the economics of the companies that mine them. Investors should cash in, says Rupert Hargreaves 
- 
 Debasing Wall Street's new debasement trade idea Debasing Wall Street's new debasement trade ideaThe debasement trade is a catchy and plausible idea, but there’s no sign that markets are alarmed, says Cris Sholto Heaton 
