Warren Buffett famously said that it’s better to buy a wonderful company at a fair price than a fair company at a wonderful price. So, which stocks listed on UK markets today fit this description?
Compass Group
Compass Group (LSE: CPG) provides food catering services to schools, offices, hospitals, and military facilities in the UK and internationally. The company, led by Mark David Hartley, employs half a million people across Europe. Over the past four years, Compass Group has demonstrated strong and consistent growth, with a remarkable 147% increase between October 2020 and November 2024, translating to an annualized return of over 25% per year. Furthermore, Compass is known for being a reliable dividend payer, having seen over 20 years of consecutive growth, except for a brief cut during Covid.
While Compass Group’s share price might not be considered cheap, its recent growth justifies its valuation. Growth stocks typically come with high price-to-earnings (P/E) ratios, but Compass’s current ratio of 33 is relatively low. With forecasted earnings growth, this ratio is expected to decrease. However, the risks involved include the possibility of a downturn in earnings or an economic recession, given the company’s significant presence in 50 countries, exposing it to political, regulatory, and foreign exchange risks.
Greggs
Zaven Boyrazian highlights Greggs (LSE: GRG) as the UK’s favorite food-on-the-go retailer, famous for its baked pasties and sausage rolls, with over 2,500 stores nationwide. Despite recent setbacks, Greggs has remained a cash-generating powerhouse, dominating the industry with its breakfast takeaway offerings, as outlined by Boyrazian.
The company’s total revenue increased by 12.7% over the first nine months of 2024, accompanied by a 6.5% rise in like-for-like sales. However, Greggs experienced a double-digit decline in its share price after the UK government budget was revealed. This drop was primarily due to anticipated higher labor costs from recent wage hikes, which could amount to £97m over the next two years. Nevertheless, Greggs has successfully navigated previous price hikes and has maintained its market position.
With current shares trading at a lower value, Boyrazian views this as a potential buying opportunity.
IG Group
Paul Summers sheds light on IG Group (LSE: IGG), a global financial technology company providing online trading platforms for clients. Summers emphasizes the business’s attractive valuation compared to the UK stock average, given its strong operating margins and returns on capital employed.
The company has displayed resilience during both prosperous and challenging economic times, with revenue rising by 15% to nearly £279m amid fears of a US recession. However, IG Group faces regulatory scrutiny and competition from rival firms, despite maintaining its market-leading status and solid balance sheet, bolstered by substantial dividends.
While there are inherent risks, IG Group remains a compelling investment opportunity, with interim results expected in January.
J D Wetherspoon
Christopher Ruane analyzes J D Wetherspoon (LSE: JDW), a prominent operator of pubs and hotels throughout the UK. Despite a P/E ratio of 16, making it relatively priced rather than cheap, Ruane believes the company offers value.
While the pub industry faces challenges such as declining numbers and increased business costs post-Budget, J D Wetherspoon’s reputation for affordable drinks positions it advantageously for price hikes. As competitors may follow suit in raising prices, the company’s status as a cost-effective drinking destination could attract more customers.
Ruane cites Spoons’ established business model, significant customer base, and franchising expansions as positive factors for future growth.
In conclusion, while each of these companies poses inherent risks, their strong market positions and growth potential warrant consideration for investors seeking long-term value in the UK market.
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