Top 5 UK Stocks to Buy in 2023

From aviation to banking and property development, we picked five best U.K. stocks listed on the London Stock Exchange to buy in 2023.

Mention “stock market” and the New York Stock Exchange (NYSE) is probably what comes to mind for most people. However, savvy investors would know that the London Stock Exchange (LSE) can be equally attractive.

Indeed, the LSE is the largest stock exchange in the United Kingdoms, and rivals the New York Stock Exchange in market capitalisation, trade volume, access to capital, and trade liquidity. In other words, there are definitely exciting trading opportunities to be found.

For a start, have a look at these five best U.K. stocks to buy on the LSE in 2023.

EasyJet (EZJ)

EZJ is down by over 40% from a year ago at the time of writing this article, but the low-cost carrier’s prospects remain bright.

The company posted significant reductions in losses for 2022, on the back of total revenue of GBP 5.77 billion. This a 295% increase over 2021, and just slightly lower than the GBP 6.30 billion posted in 2019.

A glance in the books reveals several other encouraging signs, including increases of 80% in net revenue and 95% in net profit over 2021.

In 2023, EasyJet is expected to benefit from increased demand in budget travel, as pandemic-weary travellers seek low-cost options amidst recession worries, galvanising analysts’ calls for share prices to reach as high as GBX 700.

All these mean that EasyJet – currently trading at GBX 343.10 – an undervalued stock well worth keeping an eye on.

Greggs (GRG)

Headquartered in Newcastle upon Tyne, bakery chain Greggs specialises in savoury and sweet baked products, including sandwiches, doughnuts, vanilla slices and – of course – sausage rolls.

Since its establishment in 2013, the company has seen steady gains in sales, profits and margins, and now has an impressive cash-flow generation, a well-recognised brand name and a fully-integrated supply chain.

Many paths to growth lay before the company – from increasing its number of outlets, to expanding to evening trade, and further investment in online sales channels. Even the looming recession offers opportunity; Gregg’s competitively priced budget line makes for compelling options for budget-conscious consumers. Meanwhile, raw material prices have been falling in recent months, providing further cost-reduction.

GRG is now trading at 29% lower from the year before, presenting investors shopping for undervalued LSE stocks with a buying opportunity.

NatWest Group (NWG)

NatWest Group had a successful 2021, setting it up for a strong stock market run in 2023.

To wit: a 54% gain in overall revenue, leaving the group sitting on a 98x spike in net income for the year. This impressive result is already manifesting NWG’s stock price which has been climbing since October this year.

The bank undoubtedly benefited from the rise in interest rates, but on the flip side, this has also brought on an elevated risk of mortgage defaults, especially if the U.K. economy continues to slow.

In anticipation, NatWest Group has set aside GBP 247 million to offset possible future losses, although the bank has yet to see any repayment problems as yet.

Broker estimates place further headroom for stock price growth of around 30%, making NWG another undervalued stock for investors to consider in the coming year.

S4 Capital Plc (SFOR)

Advertising and media group S4 Capital Plc had a dismal 2022, culminating in a share price collapse of 69%. But there’s reason to believe the company’s stock is headed for an imminent turnaround.

In 2022, S4 Capital doubled its total revenue from the year before to GBP 686 million, generating a 74% rise in EBITDA (earnings before interest, taxes, depreciation and amortisation).

While operating expenses also increased – prompting a surge in net income loss for the year – the company nevertheless remains in good financial health. Cash and total assets increased 112% over 2022, leaving S4 Capital with total assets of GBP 1.69 billion versus total liabilities of GBP 884 million.

SFOR’s strong fundamentals and positive outlook has garnered ‘Buy’ calls among analysts believing the stock to be trading significantly under fair value at the moment. This is supported by trading behaviour recently observed; insiders reportedly bought up GBP 1 million worth of stock till Nov 2022.^.[1]

Barratt Developments (BDEV)

There are two reasons why investors might want to pay attention to BDEV. Firstly, being a leading property developer in the U.K. the company enjoys an entrenched position in a cyclical sector. Secondly, inflation and recession fears have brought the price of the stock well into the ‘undervalued’ category, creating potential for patient investors.

One caveat: BDEV may see stock price declines in the short term as homebuyers pause for cover from looming economic headwinds.

However, Barratt Development’s balance sheet remains healthy – total revenue rose by 9.48% in 2022, even as operating expenses went up by nearly 26%. Additionally, net income remained strongly positive at GBP 515 million, despite a 27% increase in total liabilities.

Another factor in BDEV’s favour is the cyclical nature of the housing sector; demand is likely to return over the long term, as inflation comes back down and recession pressures abate.

Why we picked these stocks

We picked these five stocks as they display good long-term potential for investors, even though volatility may be seen in the short term.

Each of these businesses have mounted strong results in 2022, managing to overcome the challenging conditions inflicted by the pandemic, ongoing inflation and looming economic headwinds. They are also strongly positioned in their respective sectors and have solid balance sheets and healthy fundamentals.

Notwithstanding the above, investors are reminded there is ongoing uncertainty in the global economy that could alter the forecast presented, and may invalidate the prevailing investing theses.

Caution should be applied when deciding to invest in these – or any – U.K. stocks, and adequate risk mitigation measures are advised.

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Reference

[1] Yahoo! Finance, Bullish S4 Capital Plc (LON:SFOR) Insiders Filled Their Treasuries With UK£1.0m Worth of Stock Over Last Year, https://finance.yahoo.com/news/bullish-s4-capital-plc-lon-083228139.html?.tsrc=rss