A market rally could be coming for UK stocks: here’s what I’m buying

Story by Dr. James Fox

A market rally could be coming for UK stocks: here’s what I’m buying

A market rally could be coming for UK stocks: here’s what I’m buying© Provided by The Motley Fool

While I’m extremely cautious, there’s some evidence the correction appears increasingly overdone. While UK exports to the US represent 2.2% of our GDP, our post-Brexit regulatory flexibility positions the UK uniquely compared to EU counterparts. What’s more, analysis from Aston University suggests that UK exports to the US could surge by 17.5% through trade diversion effects if the EU and US fail to hammer out a deal.

What’s more, the US exceptionalism narrative is weakening as inflation concerns mount. With US tariffs potentially adding 2.2 percentage points to American inflation, capital will likely seek alternative havens. Meanwhile, the 30% GDP gap between Europe and the US may begin to narrow once again. I’d also suggest that Trump’s constantly changing tariffs have worsened investor sentiment. I’m finding it hard to add to my US holdings

Here’s what I’m buying

Despite the possibility of a rally, I moved to a largely cash position early in the Trump presidency. However, I’ve been slow to initiate positions in UK stocks. I think it’s best to be extremely cautious. The one that I that I have bought is JET2.

I think Jet2 should be getting more attention for its strong financial position. It currently boasts a net cash reserve of £2.3bn and a market cap of £2.7bn, making its enterprise value just £400m. That’s equivalent to just one year of forecasted net income. But it’s not just me. Institutional analysts highlight its undervaluation, with an average price target 66% higher than current levels.

The company plans to invest £5.7bn by 2031 to modernise its fleet, transitioning to a predominantly Airbus configuration, which could enhance operational efficiency and reduce costs in the long term.

My bullishness simply comes down the valuation. Jet2 essentially has a net cash adjusted price-to-earnings ratio of one. That’s so many times cheaper than its peers.