5 UK shares at 52-week lows to consider buying

I think there’s a good chance that the bear market that has seen the AIM index fall by 40% over the last couple of years may now be easing to a close.

If I’m right, then now could be an excellent time to revisit the screen I wrote earlier this year to search for shares trading close to their 52-week lows.

I can’t be sure that we’re close to the bottom, of course.

But interest rates appear to have topped out for now, which could ease one of the pressures on asset valuations. In addition, I feel that many UK equities offer enough value at the moment to justify investing, despite the near-term economic uncertainty.

Although I expect to see some degree of softness in earnings next year, I don’t expect a serious collapse in corporate profits. Based on this assumption, I think there’s already plenty of bad news priced into UK equities.

Of course, anyone expecting a serious 2008-style collapse is likely to be taking a more cautious view than me, especially with cyclical businesses.

My 52-week low screen revisited: multibagger opportunities?

I am naturally inclined to take a fairly conservative approach to investing. I prefer companies with strong balance sheets, a track record of solid profitability, and good cash generation. I also want them to be reasonably priced.

Given this, you can imagine how pleased I was to see Ed talking about these characteristics in his fascinating multibagger webinar last week (follow the link for the replay and extended slide deck).

It turns out that statistically, multibaggers often start out as profitable, reasonably priced companies with established sensible business models and room to scale.

To me, that sounds like a fair description of some of the companies that are appearing in my 52-week low screening results at the moment. There are too many to cover here, so I’ve selected five shares that I think look particularly interesting right now.

Click here for my 52-week-lows screen

5 stocks I’d consider

I’ll start with a bonus share – last week I published an in-depth Stock Pitch on Serica Energy (LON:SQZ). Although the long-term future of this business may be uncertain, I’m fairly sure there’s some value on offer at the moment. You can read the article here.

Michelmersh Brick Holdings (LON:MBH)

Michelmersh owns and manufactures a range of premium brick brands in the UK and Belgium. The shares have halved from 2021 highs and there are obviously some cyclical concerns about the outlook for demand.

However, half-year results were in line with expectations. I think this group’s premium positioning and exposure to the UK import market (which mostly involves products not available domestically) provides some differentiation from market heavyweights Ibstock (LON:IBST) and Forterra (LON:FORT).

Michelmersh’s accounts also look very strong to me, and I like the continued founder ownership:

Michelmersh shares currently trade just below book value and offer a 5% yield. I think they look good value.

Two other stocks from this sector in my screening results that I’d also consider are James Latham (LON:LTHM) and Epwin (LON:EPWN).

Fonix Mobile (LON:FNX)

Despite technically trading close to a 52-week low, mobile payments specialist Fonix is still classed as a High Flyer by Stocko’s algorithms and is trading on 20 times forecast earnings.

Does that rule it out as a potential purchase? I don’t think so. I’ve had a very favourable impression of this fast-growing business since its 2020 IPO. It’s highly profitable, capital light and generates plenty of cash.

Paul and Graham have also commented favourably on this business, most recently here.

As with any fast-growing business, there’s a risk that the growth rate will slow and the stock will de-rate sharply. But I don’t see any evidence of this at the moment. Net cash and a 4% dividend yield provide further reassurance. I think this could have multibagger potential.

British American Tobacco (LON:BATS)

I know that not all investors are comfortable with tobacco investments. There’s also the fact that smoking rates in developed markets, at least, are falling and a growing number of governments are aiming to make smoking illegal for future generations.

However, for the moment, the reality remains that British American Tobacco is robustly profitable and trades on very low valuation multiples.

BAT shares currently offer a 9.5% dividend yield. Stockopedia data suggest this is backed by a trailing earnings yield (EBIT/EV) of 13% and free cash flow yield of 17%.

The group’s strategy is to maintain high levels of cash returns to shareholders and invest little internally. If the current dividend policy is maintained, an investment at today’s prices could repay itself completely through dividends over the next 10 years.

Looking ahead, BATS is making good progress with smoking alternatives. These now generate more than 15% of revenue, although this business is only just approaching breakeven.

One other attraction is the group’s 23% (£10bn) shareholding in India’s ITC (NSI:ITC), which contributed £319m to BAT’s profits during the first half of 2023 alone. Emerging markets have growing populations and it’s possible that smoking rates will not decline as quickly as in the west.

It’s not an investment for everyone, but I believe there’s good value and income on offer here.

Capital (LON:CAPD)

This mining services business has long-term owner management and has delivered strong growth in recent years – operating profits have risen fivefold since 2017, although there has been some dilution in this time.

One complication in terms of analysis and valuation is that there are quite a few moving parts here.

In addition to the core mining services (contracting) business, Capital also has an assaying business (MSALABS) and holds significant equity investments, often in client companies.

At the end of the third quarter, these investments were valued at $47.8m, or around 40% of the group’s market cap. However, their reported value fluctuates regularly and I’d suggest these equity stakes in other mining businesses are hard for outsiders to evaluate.

Holding such investments rather than operating a pure contracting model may also mean that the group’s exposure to commodity price movements is amplified.

Even so, Capital doesn’t look expensive to me. The shares have fallen by nearly a quarter this year and trade below book value, on just five times forecast earnings. Quality metrics look decent and the outlook appears to remain relatively stable:

For investors with an understanding of this sector, I think Capital could be worth a closer look.

Hargreaves Lansdown (LON:HL.)

The UK’s leading investment platform for private investors has a market share of around 40%. Hargreaves generates a 50% operating margin and plenty of free cash flow, but its shares have fallen by almost 70% from the all-time high reached in May 2019.

Hargreaves now trades on just 11 times forecast earnings with a prospective dividend yield of more than 6%.

I admit this business faces some challenges around its growth strategy and growing competitive pressure. There’s also the risk that the FCA’s new Customer Duty regulations could lead to a reduction in interest income or fee margins.

Even so, I think this business is just too cheap. Customers tend to be sticky and Hargreaves’ market-leading scale should provide a durable advantage, in my view, assuming the company doesn’t make too many self-inflicted errors.

I would also expect an uplift in trading activity when market sentiment starts to improve – which it will, at some point.

With founder Peter Hargreaves still controlling almost 20% of the stock, I’d be happy to put my cash to work alongside his.

Stockopedia