This article is a website version of our weekly FREE Best Ideas Newsletter sent on 25.04.2023. Sign up here to get it in your inbox every Tuesday.

There's a consensus that the UK market is highly underpriced.

Other than tobacco companies (two of which I already own), it's worth exploring the extent of undervaluation within UK companies. This could potentially reveal a plethora of investment opportunities for further exploration.

The quest for inexpensive UK companies

To unearth the most underpriced UK companies, I defined the following criteria:

• I exclusively pinpointed companies in the UK
• Established a minimum daily trading volume of $100,000
• Specified a minimum market cap of 100 million U.S. dollars
• Only considered companies with updated financial data in the last six months
• To filter out lower quality companies, I picked the top 70% companies in terms of the Piotroski F score.

The most underpriced UK companies based on price to earnings (PE)

Using the aforementioned criteria, I utilized the price to earnings ratio to gauge the level of underpricing among UK companies.

Here are the results of the screening:

Source: Quant Investing stock screener

As evidenced, the selection presented remarkably low-priced companies, with one entity trading at a historical PE ratio of under 2!

Furthermore, it unveiled quite a few shipping, energy, financial services companies, and surprisingly, two car dealers, Lookers PLC and Pendragon PLC.

Budget-friendly Value Composite companies trending upwards

In this screening, I pinpointed cost-effective companies with a Value Composite Two value of less than ten.

Subsequently, I arranged this list based on six months price momentum (price change over the past 6 months) from high to low.

This methodology aimed to uncover cost-effective companies with a favorable upward stock price trajectory.

As you may recall, combining undervalued companies with positive momentum is a key aspect of all the best strategies that were put to the test.

This is what the screen revealed:

Source: Quant Investing stock screener

Predictably, it unveiled several housing developers and related entities, alongside a shipping company.

Qi value UK companies with an upward momentum

In this subsequent screening, I utilized the Qi Value indicator (I incorporate it in my own portfolio) to unearth bargain companies.

I filtered out undervalued companies with a Qi Value of less than 10 and proceeded to rank this group of companies based on their six months price momentum.

As a quick refresher, the Qi Value indicator is derived from the following four ratios:

• EBITDA Yield
• Earnings Yield
• FCF Yield
• Liquidity (Qi)

The screening uncovered the following list of companies:

Source: Quant Investing stock screener

As observed, the same names kept surfacing. This is a common occurrence when seeking undervalued companies; it's irrespective of the ratio or indicator used.

High free cash flow yield UK companies in an upward trajectory

In the final screening, I collated all companies with a free cash flow yield exceeding 15%, and then arranged this list based on their six months price momentum.

Free cash flow yield is derived from cash from operations minus capital expenditure divided by enterprise value.

This particular screening highlighted companies possessing a free cash flow yield of at least 15% AND enjoying an upward stock price trajectory.

The following companies emerged from this screening:

Source: Quant Investing stock screener

As evident, a different set of companies surfaced, with representations from shipping and energy sectors, and an intriguing addition of Shoe Zone, a discount shoe retailer with a free cash flow yield of just under 16%!

The UK appears extremely enticing

It's clear that the UK stock market is underpriced and presents an extremely enticing prospect!

It's truly a fertile ground for uncovering undervalued companies.

Your go-to analyst for discovering the most remarkable deals,

PS To uncover BARGAIN-Priced companies in the UK that align with your investment strategy, click here.

PPS It's easy to get sidetracked, so why not sign up now before you get distracted?

???? Fresh Content

These underperforming companies pose a threat to your portfolio – 2023 update

My preferred brokerage services

Top Price to Book Piotroski F-Score stock ideas for 2023

In Case You Missed It ????

Finest EBIT to Enterprise Value Momentum stock ideas for 2023

Magic Formula investment strategy back test (2022 update)

How to make 2023 your most remarkable investment year