The UK stock market is having a great run at the moment. After years of underperformance, it’s suddenly ripping higher.
Here, I’m going to highlight three shares that I think could do well if this trend continues. These stocks are undervalued, in my view, and I think they’re worth considering as part of a diversified portfolio today.
Rightmove
First up, we have Rightmove (LSE: RMV). It operates the largest property search portal in the UK.
This stock is cheap right now, I feel.
A high-quality internet company with an exceptional track record, Rightmove is one of the most profitable businesses in the FTSE 100 index.
Yet right now, it’s trading on a P/E ratio of just 20.8, falling to 18.5 using next year’s earnings forecast.
That earnings multiple is too low, to my mind.
If this company was listed in the US, I think its P/E ratio would be between 25 and 30.
It’s worth pointing out that Rightmove could face more competition in the years ahead. Recently, rival OnTheMarket was bought by a US company with substantial financial firepower.
However, as a user of Rightmove’s app and website myself, I’m pretty confident that people are going to continue to use its services.
It’s worth noting that analysts at Morgan Stanley just raised their target price to 650p. That’s about 20% above the current share price.
Ashtead
The next stock I want to focus on is Ashtead (LSE: AHT). It’s a construction equipment rental company that generates a large chunk of its revenues in the US.
This stock has done quite well this year. Year to date, it’s up about 10%.
However, compared to its main US rival, United Rentals, which is up more than 20%, it has actually underperformed dramatically. So I reckon it has some catching up to do.
I’ll point out that Deutsche Bank has a price target of 6,800p – 15% above the current share price.
Looking at analysts’ earnings forecasts, Ashtead shares currently trade on a forward-looking P/E ratio of about 18.
For a company that’s well placed to benefit from the huge infrastructure boom in the US, as well as things like live concerts and events, I think that multiple is attractive.
That said, construction is a cyclical industry. So, there’s always a chance of an industry downturn.
JD Sports Fashion
Finally, we have JD Sports Fashion (LSE: JD.). It’s a leading athletic footwear and clothing retailer.
This stock strikes me as attractive for a couple of reasons.
One is that it has seen a huge fall over the last two-and-a-half years. Currently, it’s nearly 50% off its highs.
Another is that it’s very cheap. At present, the company’s P/E ratio is under 10.
That just seems too low for a company that sells Nike and Adidas trainers – which are more often than not in high demand – and is exposed to big trends like the casualisation of fashion and the increased focus on wellness.
Of course, a consumer slowdown is a risk here. There are signs that JD’s main demographic could be running a bit low on cash due to inflation.
At the current valuation, however, I think there’s a margin of safety.
