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We all know that UK stocks are currently undervalued compared to those listed elsewhere, particularly booming New York. But Goldman Sachs really lays bare how cheap!
According to analysts at the bank, shares on the London Stock Exchange now trade at a 52% discount to their US counterparts. For some sectors, it’s even higher. Yikes.
Worrying trend
I won’t get into the weeds about how this has happened (a whole book could be written about the topic). But the old phrase, “The US innovates, Europe regulates“, probably gets to the heart of the matter.
In a nutshell, overregulation and taxes (particularly stamp duty on the purchase of UK shares) leads to reduced liquidity, which can lead to lower valuations.
The consequences are alarming. In 2024, 88 companies have delisted or transferred their primary listing from London’s main market, but only 18 have taken their place. Bloomberg says this will be the highest year for UK de-listings since 2010.
Equipment rental company Ashtead Group is the latest to bid farewell to London in favour of New York. Named after the village in Surrey, England, it’ll even rebrand as Sunbelt Rentals.
Wiser heads needed
There have been some reforms, but clearly more will be needed. Wise — a genuine London-listed fintech innovator with a £10.5bn market cap that floated in 2021 — isn’t even in the FTSE 100!
From what I can gather, Wise has to actively apply to a new category that ensures it meets enhanced and stringent regulatory requirements. Perhaps it won’t even bother with the paperwork to join the Footsie.
Unfortunately, I think it’ll take a bigger fish than Ashtead for policymakers to really start taking this seriously. If oil giant Shell (the UK’s second-largest listed firm) upped sticks, that would probably mark a turning point.
Shell has often traded at a discount to US-listed peers. Meanwhile, Donald Trump has promised to “drill, baby, drill“, over there, while Europe is going the other way. Therefore, the US would seem to me to be a logical move for Shell and its shareholders over the long term.
Opportunities galore
Of course, a company’s potential for global expansion is primarily driven by its strategic vision and competitive positioning, rather than where it’s listed.
So the flip side to all this is that there are almost certainly many bargains about in the UK market today.
One stock that I think is very undervalued right now is JD Sports Fashion (LSE: JD). The share price has crashed 41% year to date.
Like most retailers, JD Sport’s been hit by weaker consumer spending. And growth issues at Nike, its key partner, certainly haven’t helped. Nike’s products are generally higher-margin, so ongoing weakness at the US sportwear giant continues to be a problem.
However, the stock now trades on a forward price-to-earnings (P/E) ratio of 6.6. Granted, there are consumer spending and Nike-specific risks, but that rock-bottom valuation looks far too cheap to me.
The company has a very strong brand, profitable business, and a growing global (and online) presence. And its strategic partnerships with Nike and Adidas give it a competitive edge over rivals.
I think this uber-cheap FTSE 100 stock is worth considering for 2025 and beyond. I recently adding some JD Sports shares to my own ISA portfolio.