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James Li
James Li
Articles (1439)  | Author's Website |

3 Margin-Growing UK Stocks as Lockdown Measures Ease Up

Episode 2 of World Travels Series aimed at finding margin growth companies

In light of the U.K. lifting its coronavirus lockdown in December, three margin growth stocks in the region with attractive valuations as of Monday based on the GF Value measure are Hargreaves Lansdown PLC (LSE:HL), Polar Capital Holdings PLC (LSE:POLR) and Jet2 PLC (LSE:JET2) according to the All-in-One Screener, a Premium feature of GuruFocus.

The "Margin Growth Screen" applies key criteria from Berkshire Hathaway Inc. (NYSE:BRK.A)(NYSE:BRK.B) co-managers Warren Buffett (Trades, Portfolio) and Charlie Munger (Trades, Portfolio)'s investing strategy, which include predictable revenue and earnings growth, as well as strong and increasing profit margins.

U.K. lifts national coronavirus lockdown, but keeps conditional restrictions

On Monday, U.K. Prime Minister Boris Johnson announced that the nation's coronavirus lockdown will be lifted on Dec. 2, ending a month-long quarantine due to resurging virus cases during early November. Despite this, the prime minister warned that the three-tiered system of restrictions this time will be stricter than the system of restrictions prior to the lockdown.

GF Value gives website-exclusive method to value stocks

As such, investors may seek margin-growing companies in the U.K. that are trading at attractive valuations. The GF Value measures a company's intrinsic value based on three key factors: historical price multiples, an internal adjustment factor based on past returns and a second adjust based on future estimates of the company's business performance. Based on a company's price-to-GF Value ratio, GuruFocus places the stock into various valuation zones, ranging from significantly undervalued to fairly valued to significantly overvalued.

The following chart shows a sample GF Value chart for Next PLC (LSE:NXT), a major U.K.-based retailer.

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As the chart shows, Next is modestly overvalued based on its price-to-GF Value ratio of 1.26. Since Buffett and Munger prefer purchasing stock in companies with fair valuations, we will limit our price-to-GF Value ratio range to an upper bound of 1.1.

On the other hand, we will also limit our price-to-GF Value ratio range to a lower bound of 0.6 to avoid investing in companies with a significantly low valuation. Such companies can become potential value traps, especially if financial strength and profitability metrics deteriorate.

The following video illustrates how to edit our "Margin Growth Screen" and save the screen with the updated filters. The video also applies the "Margin Growth Rank," which ranks the list of stocks based on a user-defined rank emphasizing operating margin growth, to the stocks listed in the results table.

Hargreaves Lansdown

Shares of Hargreaves Lansdown traded around 14.80 pounds ($19.75), showing that the company's stock is undervalued with a price-to-GF Value ratio of 0.66.

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While the stock's price-to-GF Value ratio is slightly too low, GuruFocus ranks the direct-to-investor investment service company's financial strength 8 out of 10 on several safe investing signs, which include a strong Altman Z-score of 8.77 and debt ratios that are outperforming over 85% of global competitors.

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Polar Capital Holdings

Shares of Polar Capital Holdings traded around 6.10 pounds, showing that the company's stock is fairly valued with a price-to-GF Value ratio of 0.96.

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Polar Capital offers funds diversified by asset class, geographic region, sectoral specialization and structure. GuruFocus ranks the company's profitability 9 out of 10 on several positive investing signs, which include a 3.5-star business predictability rank, a return on assets outperforming over 90% of global competitors and a three-year earnings growth rate that outperforms over 81% of global asset management companies.

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Jet2

Shares of Jet2 traded around 13.33 pounds, showing that the company's stock is fairly valued with a price-to-GF Value ratio of 0.93.

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Jet2 provides licensed packages for leisure flights and stays at a wide range of vacation destinations. GuruFocus ranks the travel and leisure company's profitability 8 out of 10 on the heels of a five-star business predictability rank, a three-year revenue growth rate that outperforms over 92% of global competitors and a three-year earnings growth rate that outperforms over 82% of global peers.

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Disclosure: No positions.

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About the author:

James Li
I am an editorial researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

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