In the competitive arena of the global stock market, certain UK shares have been quietly outperforming their US counterparts. Arguably, amidst all the clamour for tech and AI stocks, many of these performances will have gone unnoticed by investors… but not by our contractors!
Barclays
What it does: Barclays is a Tier 1 bank, serving a wide range of client types in the UK but also abroad.
By Jon Smith. When I look at the banking space, Barclays (LSE:BARC) has been flying the flag for the UK versus US peers. The stock is up 33% over the past year, in comparison to the 11% gain from Morgan Stanley and a 22% gain from Citigroup.
What is helping the outperformance is the new strategy that was announced back in February. The push to cut costs over the coming couple of years will save billions, which will make the bank a more nimble and efficient operation.
Further, Barclays was very undervalued as a stock at the beginning of the year and I think value investors are finally catching on.
It’s true that Barclays doesn’t have the global footprint in the same way as some US peers do. This could hinder further growth prospects, but I don’t see it as a huge point for concern.
Jon Smith owns shares in Barclays and Citigroup.
Barclays
What it does: Barclays is a universal bank with the majority of its earnings coming from its UK operations.
By Dr James Fox. British banks have underperformed their American counterparts since the financial crash, broadly achieving poorer returns and trading with lower multiples. Barclays (LSE:BARC) has been among the UK’s cheapest banks, trading around 4.5 times earnings a year ago.
However, things have changed. Investors have been wowed by C.S. Venkatakrishnan’s plan to turn the company around, with £30bn of risk-weighted assets to be assigned to its UK banking arm, and a complementary cost-cutting programme.
The UK’s fragile economy remains a headwind for UK-focused banks. Nonetheless, with interest rates set to moderate towards the ‘Goldilocks Zone’ – around 2.5-3.5% – things are looking up for customers and banks alike.
Barclays shares are up 55% over the past six months, vastly outperforming major US banks like JPMorgan. However, the valuation gap remains. Barclays is trading around eight times forward earnings, versus JPMorgan at 12.4 times.
There’s plenty of room for further share price growth if Venkat can improve Barclay’s returns on equity.
James Fox owns shares in Barclays.
Bloomsbury
What it does: Bloomsbury is a publisher of children’s and adult’s books, including the Harry Potter franchise
By Christopher Ruane. Bloomsbury (LSE: BMY) can feel like the publisher with a sprinkling of magic dust. The shares are up 36% in the past year alone.
That compares favourably to the 6% and 16% declines in that period by New York-listed peers John Wiley and Sons and Scholastic respectively.
That magic dust is partly thanks to the firm’s publication of the Harry Potter series, still going strong. Last year, the UK’s bestselling children’s book was Harry Potter and the Philosopher’s Stone. The firm grew revenues 30%, diluted earnings per share 59% and its annual dividend per share by a quarter.
Bloomsbury’s children’s trade division was responsible for over 100% of the firm’s profit last year, basically subsidising lossmaking parts of the operation. So much reliance on one business division is a risk, especially if the children’s market sees demand fall.
Despite a surging share price, Bloomsbury trades on a price-to-earnings ratio lower than Scholastic and only slightly costlier than Wiley.
Christopher Ruane does not own any of the shares mentioned.
Centamin
What it does: Centamin is a leading gold producer. It owns and operates Sukari, Egypt’s largest gold mine.
By Andrew Mackie. Off the back of gold prices repeatedly hitting all time highs, precious metal miners have been some of the best performing stocks across both US and UK indices. One of the largest producers in the world, Barrick Gold is up 18% since mid-February. However, Centamin, (LSE: CEY) a mid-cap FTSE 250 miner has risen 31% over the same time frame.
The case for owning gold stocks today is compelling. Ballooning government deficits and increasing geopolitical tensions has increased the importance of owning a neutral asset with no counterparty risk. In my opinion, gold is the only asset that provides such credibility.
As gold continues its march towards $2,500, smaller cap names will be the more likely beneficiaries of this new gold cycle. With its high-quality revenue-generating mine at Sukari, plus a number of advanced exploration projects, Centamin remains one of my firm favourites.
Sticky inflation remains one of the biggest risks. Labour, consumables and fuel costs continue to eat into its margins. However, these costs will pale into insignificance if gold prices keep rising into the future.
Andrew Mackie owns shares in Centamin.
Darktrace
What it does: Darktrace develops AI-powered cybersecurity tools to identify and tackle cyber attacks in real time.
By Mark David Hartley. UK cybersecurity firm Darktrace (LSE: DARK) is up by over 100% in the past year, with the growth partly due to its promising implementation of AI technology. Meanwhile, US rival Fortinet is down 8%. However, aside from being in cybersecurity, there are some notable differences. Darktrace is a £4bn firm that’s just over a decade old while Fortinet, with a market cap of $46bn, emerged from the 2000 tech boom.
The smaller market cap understandably gives Darktrace more space to grow. But it’s also less established and more prone to risk and volatility. The rapid price rise means the shares are now estimated to be overvalued by 10% based on future cash flow analysis. Coupled with a very high price-to-earnings (P/E) ratio of 43.6 I’d say a correction is on the cards. Still, Darktrace is making the UK proud and I think it has excellent long-term potential.
Mark Hartley owns shares in Fortinet.
