Three British stocks to brighten your portfolio

Professional investor Simon Murphy of the VT Tyndall Real Income Fund highlights three of his favourite British stocks that you might have missed through all the doom and gloom.

The daily headlines in Britain can make grim reading: there has been constant news of fuel shortages, rising inflation and frictions over Brexit, while the pandemic is still with us. But take a closer look and the economic backdrop, from our perspective at least, doesn’t seem nearly so bad. 

There has been an extraordinary increase in household savings through the pandemic; the housing market has remained strong; and jobs and wages have recovered rapidly and vigorously. 

So it is no surprise that UK consumers’ confidence in their own personal financial situation recently hit a 14-year high. As such, we think there are tremendous opportunities in many UK-related stocks that are potentially being missed through all the doom and gloom.

OSB Group – a highly profitable bank for a low price

One such stock is OSB Group (LSE: OSB), previously known as OneSavings Bank. Specialising in the professional buy-to-let (BTL) mortgage market, OSB is one of the fastest-growing, most profitable and well capitalised banks in the country. The outlook for the BTL market remains positive given attractive rental yields and high demand from tenants. 

OSB’s book of outstanding loans grows at around 10% per year, and there is plenty of room for further expansion given it currently has only 5% of the market. Owing to the specialist nature of the lending, combined with an exceptionally efficient administration infrastructure, the bank makes a return on equity (a key gauge of profitability), of more than 20% most years. Yet the stock is currently trading on a price/book (p/b) ratio of 1.3. 

Wickes – Home renovation on solid foundations

Another company that fits the bill is the UK’s second-largest home-improvement retailer Wickes (LSE: WIX). It used to be part of the Travis Perkins group but was demerged and listed on the London stockmarket in April 2021. It is a well balanced business spread across the three key areas of do-it-yourself (DIY), local tradesmen, and do-it-for-me (DIFM). 

There are plenty of opportunities for growth as the nation continues to focus on improving its homes following the pandemic. The store estate is well invested, digital capability is strong and the operating model is highly efficient. Over 65% of sales start through digital channels but 95% are still fulfilled in-store. The current ten-times price/earnings (p/e) ratio looks far too low for the quality of the business and its ability to generate cash.

Marks and Spencer – not just any reinvention...

We are also excited by the transformation at high street stalwart Marks and Spencer (LSE: MKS). The food side of the business has been steadily improving, reducing the use of promotions and gradually taking market share over the last two years. The addition of the Ocado Retail joint venture in 2019 is also a positive development. 

However, it is the improvement in the clothing and homeware side of the firm, accelerated in the pandemic and helped by the closure of high-street capacity elsewhere (Debenhams, for example), that offers the real potential for positive surprises. Profit forecasts for 2021-2022 were upgraded in the last update and we are hopeful of more to come. Investors, however, remain sceptical that improvement is sustainable: the stock is on a p/e ratio of 11. 

Recommended

Share tips of the week – 7 October
Share tips

Share tips of the week – 7 October

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
6 Oct 2022
China’s economy is heading for a sharp slowdown
Chinese economy

China’s economy is heading for a sharp slowdown

With a slowing property market, Covid lockdowns sapping growth and the CSI 300 stock index down by 22% this year, China’s economy is in trouble.
6 Oct 2022
5 of the world's best stocks
Share tips

5 of the world's best stocks

Concentrating on a few highly profitable companies that excel in their fields can reduce the overall risk in your portfolio, says Rupert Hargreaves. H…
6 Oct 2022
The dangers of derivatives as the “Goldilocks era” ends
Investment strategy

The dangers of derivatives as the “Goldilocks era” ends

That this is no longer a benign environment for investors, says Andrew Van Sickle. But – as the recent pension-fund derivatives blow-up shows – not ev…
6 Oct 2022

Most Popular

Should you take a 25% tax-free pension lump sum in instalments?
Pensions

Should you take a 25% tax-free pension lump sum in instalments?

Taking out a 25% tax-free lump sum sounds appealing but it might not be the best way to manage your pension
30 Sep 2022
Markets may have bounced, but this is not the end of the bear market
Stockmarkets

Markets may have bounced, but this is not the end of the bear market

Stocks are back on the rise, commodities and precious metals prices are up – even the pound has rebounded. But none of this is typical of bull markets…
5 Oct 2022
October’s Premium Bonds: how to check if you are a winner
Savings

October’s Premium Bonds: how to check if you are a winner

NS&I has added almost 110,000 more prizes to October’s Premium Bond draw – are you a winner?
4 Oct 2022