4 shares undervalued by investors? Centrica PLC, Next plc, J Sainsbury plc and British American Tobacco plc

Do these 4 stocks have more upside than the stock market is pricing in? Centrica PLC (LON:CNA) (CNA.L), Next plc (LON:NXT) (NXT.L), J Sainsbury plc (LON:SBRY) (SBRY.L) and British American Tobacco plc (LON:BATS) (BATS.L)

NEXT plc
NEXT plc

While stock market volatility may be high at the moment, I’m wondering whether the share prices of Centrica PLC (LON:CNA) (CNA.L), Next plc (LON:NXT) (NXT.L), J Sainsbury plc (LON:SBRY) (SBRY.L) and British American Tobacco plc (LON:BATS) (BATS.L) undervalue their prospects.

Sainsbury’s has a PE ratio that is barely in the double digits. This could suggest that it offers growth potential over the medium term – particularly since it is forecast to return to positive EPS growth over the next couple of years.

Sure, the prospects for the retail sector are uncertain due to declining consumer confidence in the UK. But with the synergies and potential cross-selling opportunities from the Argos deal, Sainsbury’s has a bright future in my view.

Next may also be undervalued even though it is experiencing declining in-store sales. The company has a PE ratio of around 11, and this could move higher if it is able to outperform some of its sector peers.

With what seems to be a strong management team and a high degree of customer loyalty, I feel that Next could perform well in the long run.

British American Tobacco’s dividend yield of 4% is relatively high in my view. The company appears to have growth potential due to the prospects for reduced risk products.

In fact, British American Tobacco is aiming to generate around $5 billion per year in sales from the next generation products space by 2022. This could transform its profitability and lead to the justification of a higher rating over the medium term.

Centrica’s dividend yield of over 7% suggests that it is not a particularly well-loved stock at the moment. That’s not particularly surprising, since the company has experienced difficulties in parts of its operations during its pivot towards energy supply and management.

In my view, more volatility could be ahead, but the company could experience improving performance. With a relatively high dividend yield, I still think Centrica has investing appeal ahead of the prospect of further cost cuts.

About Robert Stephens 3883 Articles
Robert Stephens is a CFA Charterholder and an Equity Analyst by trade. He is a passionate private investor who has been buying and selling shares for many years, owning a wide range of UK shares in the process. He has written for Citywire and The Motley Fool US and now runs his own business. To contact Robert, please email [email protected] or use one of the other contact methods available on the 'Contact Us' page