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The UK stock market had a great run in 2024. When investors invest in FTSE 100 at the beginning of the year, they would have received a return of 5.6%. I FTSE 250 worked slowly, yielding 5%.
However, UK indexes have a long history of underperforming their US counterparts. I S&P 500for example, it returned 25.9% to investors last year.
Investors should note that UK stocks and indices tend to have high dividend yields. This may change the total amount of the refund. In addition, there are foreign exchange effects to consider.
But there is no doubt in my mind that US stocks are outperforming UK stocks.
What causes this?
The main reason why UK companies are underperforming is because of low valuations. The price-to-earnings (P/E) ratio of the S&P 500 is 29.8, while the UK stock market has a low P/E ratio of 15.8.
The explanation for this is that UK companies lack new and exciting companies. Footsie is dominated by financial services, banking, oil, mining, etc. companies. Meanwhile, US companies are more focused on technology and show higher growth.
Although companies like Rolls-Royce they put an end to this practice, they returned 93.5% last year, this is different from the rule. With the UK economy contracting in October, and the CBI reporting its lowest expectations for next year, I think UK companies will continue to underperform.
However, there is one FTSE 250 company that I hold shares in, and I plan to increase my position in it next year.
Moving forward!
I want to preface this section by noting that diversification is important for investors. It allows them to spread their risk over several companies. My portfolio is balanced as I also hold a few US stocks.
With that he said, A train line (LSE:TRN) is my current favorite UK share.
It had a different 2024, its shares increased by 36%.
I like the company because its train system is taking advantage of the digitalization of train tickets. As the most downloaded train app in Europe, it is well positioned to benefit from the paperless rail economy.
The company is also experiencing strong growth, with sales up 17% year over year in the last quarter.
However, I am very excited about its growth prospects in international markets. It operates in more than 40 countries (mostly in the EU). However, net ticket sales from this segment are only £583m, compared to £1.97bn in the UK. Considering the EU’s population of 449m is smaller than the UK’s 69m, there is good potential for strong long-term growth in this market.
There is strong evidence that it is effective in this regard. Total ticket sales in Spain and Italy increased by 23% year-on-year in the last quarter.
Another key risk for the business is lower carrier competition, as the rail system’s performance declines. This is because consumers no longer benefit from the price comparisons the app provides.
However, I am still optimistic about the future of the railway company. I may buy more UK stocks as the year goes on, but for now, I’m happy to keep my exposure limited to Trainline.
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