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We all know that UK stocks are currently undervalued compared to those listed elsewhere, especially booming New York. But Goldman Sachs it really shows how cheap it is!
According to analysts at the bank, shares on the London Stock Exchange they now trade at a 52% discount to their US counterparts. In other sectors, it is even higher. Yes.
A worrying trend
I won’t get into the weeds about how this happened (an entire book could be written on the subject). But the old saying, “The US innovates, Europe controls“, perhaps gets to the heart of the matter.
In short, excessive regulation and taxes (especially stamp duty on UK share purchases) lead to reduced liquidity, which can lead to lower prices.
The results are frightening. In 2024, 88 companies delisted or transferred their primary listings to the main London market, but only 18 replaced them. Bloomberg says this will be the highest year for UK delisting since 2010.
Equipment rental company The Ashtead Group it’s the latest to say goodbye to London in favor of New York. Named after a town in Surrey, England, it will be rebranded as Sunbelt Rentals.
Smart heads are needed
There have been some changes, but clearly more will be needed. Smart – a real London-listed fintech startup with a £10.5bn market capitalization in 2021 – isn’t even on the market. FTSE 100!
From what I can gather, Wise should apply for a new category that ensures it meets the enhanced and stricter regulatory requirements. Maybe there won’t even be any paperwork involved in joining Fotsie.
Unfortunately, I think it will take a bigger fish than Ashtead for policy makers to start taking this seriously. If the oil giant A shell (the UK’s second largest listed firm) raised stakes, which could mark a turning point.
Shell tends to trade at a discount to its US-listed peers. Meanwhile, Donald Trump has promised to “bore, baby, bore“, over there, while Europe is going the other way. Therefore, the US seems to me to be a logical step for Shell and its shareholders in the long term.
Lots of possibilities
Of course, a company’s ability to grow globally is driven primarily by its strategic vision and competitive positioning, rather than where it is calculated.
So the flip side of all this is that there are probably a lot of bargains to be had in the UK market today.
One stock that I think is undervalued right now JD Sports Fashion (LSE: JD). The stock price is down 41% year to date.
Like many retailers, JD Sport has been hit by weak consumer spending. And growth problems in Nikeits main partner, never helped. Nike products are generally high-margin, so continued weakness in the US sportswear giant continues to be a problem.
However, the stock now trades at a forward earnings ratio (P/E) of 6.6. Granted, there are consumer spending and Nike-specific risks, but that rock-bottom valuation seems too cheap to me.
The company has a very strong product, a profitable business, and a growing global (and online) presence. And its strategic partnership with Nike and Adidas it gave a competitive advantage over competitors.
I think this cheap FTSE 100 stock should be considered for 2025 and beyond. I recently added JD Sports shares to my ISA portfolio.
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