2014 has been a major disappointment for UK investors. Indeed, after making gains of 14% in 2013, there was a huge amount of optimism and excitement surrounding the FTSE 100 as we headed into 2014. However, those feelings have failed to deliver any increases in the UK stock market, with it being down nearly 3% since the turn of the year.
Of course, a market pullback means shares are cheaper, which equates to more buying opportunities. Here are three companies that offer good value and have long term potential.
Tesco
It’s been an eventful 2014 for Tesco (LSE: TSCO), with Chief Executive Philip Clarke deciding to step down. The future, therefore, is uncertain and there have been rumours surrounding the company’s dividend being cut and UK store numbers being pegged back. However, the current valuation appears to adequately price such uncertainty in, with Tesco trading on a price to earnings (P/E) ratio of just 9.8.
This is considerably lower than the wider index, which has a P/E of 13.2, and shows that while investors in Tesco will have to endure uncertainty moving forward, there is huge potential for an upward re-rating in its share price over the medium term.
BP
After a number of challenging years following the Deepwater Horizon oil spill, BP (LSE: BP) is really starting to turn itself around. Certainly, further sanctions against Russia are likely to be detrimental to its bottom line, but this uncertainty appears to be priced in. Shares in BP currently trade on a P/E of just 9.8, which is well below the wider index’s valuation. Furthermore, BP offers investors a well-covered yield of 5%, which should allow them to take a longer term view as the company continues the process of restructuring resulting from the vast cost of the oil spill.
Indeed, with an attractive asset base, strong yield and low valuation, BP could prove to be a top-notch investment.
Petrofac
While the FTSE 100 has disappointed in 2014, Petrofac (LSE: PFC) has delivered an even worse performance. Shares in the oil support services company are down 12% year-to-date and now offer an attractive buying opportunity. Indeed, they trade on a P/E of just 10.5 and offer a yield of 3.5%. However, they have the potential to be a much better income play, since Petrofac’s dividend payout ratio is just 37%, which means that dividends per share could increase at a brisk pace moving forward.
In addition, Petrofac is forecast to deliver earnings growth of 23% next year, which means that shares in the company currently offer growth at a very reasonable price.
