My best bargain British stocks

Blink and you missed it but the “British Isa” announced by our former chancellor, Jeremy Hunt, in his last budget will be shunned by our new chancellor, Rachel Reeves, in her autumn statement next month. Even so, investors don’t need a tax shelter to identify value.
Buying low is often — but not always — the first step towards making a profit, so investors should consider British businesses that are priced in the bargain basement. While the American Standard & Poor’s 500 index has risen 20 per cent this year, Britain’s FTSE 100 benchmark has advanced less than 7 per cent.
Sad to say, there are several sterling laggards lurking in my “forever fund”, from blue chip giants to corporate tiddlers. Undaunted, I continue to hold them as part of a globally diversified portfolio in the hope of better times ahead.
Unilever (stock market ticker: ULVR) is a £123 billion consumer goods group, possibly best known for Dove soap, Magnum ice cream and Marmite spread. Shares I bought for £25.45 in 2013, when I began reporting my investments here, fetched £48.42 on Friday.
At first glance, that does not look too bad but this business has lagged behind American rivals such as Procter & Gamble. The US giant has more than doubled shareholders’ money over the same period and is priced at 28 times corporate earnings, compared with Unilver’s price/earnings (PE) ratio of 22.
Both companies have long histories of raising dividends and Unilever has done so every year since 1995. Income is important to this investor and a dividend yield of 3 per cent pays me to be patient while we wait to see if a newish chief executive, appointed last year, can improve returns.
Diageo (DGE) the £55 billion brewer and distiller looks distinctly hungover after the go-go days for cocktails at home during Covid lockdowns. Well, anything wet, really.
Worse still, there are reports that young people don’t drink nearly as much as boomers did or do. This business is best known for Johnnie Walker whisky, Guinness stout and Smirnoff vodka but I must admit it is quite a while since I bought any of them.
So perhaps I should not be surprised that shares I transferred from a paper-based broker at £21 in 2013 trade at a less-than-intoxicating £24.98 on Friday. The glass-half-empty view of these shares is underlined by a PE ratio below 19. By contrast, Brown-Forman, the Jack Daniel’s bourbon business, trades above 22 times earnings.
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Once again, rising dividends come to the rescue, with DGE having increased shareholders’ income every year since 1987. A new chief executive, also appointed last year, gives grounds for hope and a 3.2 per cent payout helps keep my spirits up.
Moving down the corporate scale by size — and surfing up the yield wave — Tufton Oceanic Assets (SHPP) is a £418 million investment trust that specialises in shipping. A century ago, many British investors would have had some exposure to this sector but relatively few do now. Even so, more than 80 per cent of international trade continues to be transported by sea.
Never mind the historic macroeconomics, here and now Tufton yields 7.1 per cent dividend income after increasing payouts by an annual average of 5.7 per cent over the past five years. Shares I bought for 86p in August 2021, cost 99p on Friday and are priced 16 per cent below their net asset value (NAV).
Greencoat UK Wind (UKW) is another specialist investment trust, albeit with total assets above £4.7 billion. Windfarms generate 7.3 per cent clean and green dividend income, having grown payouts by 6 per cent a year over the past five years.
Shares I bought for £1.45 in August last year remain becalmed at £1.38 this week and flutter 11 per cent below their NAV. But I have no intention of selling, not least because I hold Tufton and Greencoat in my Isa, so their inflation-busting income is tax-free.
However, it would be wrong to imagine buying British is all about dividends. ITM Power (ITM) makes hydrogen by using wind-generated electricity to split the explosive gas out of water. I first invested at 41p per share in 2010, before taking profits at 56p the following year and then buying more heavily, with 2 per cent of my life savings, at £1.24 in January 2020, as reported here at that time.
Excitement about this Sheffield-based innovator propelled the share price to £5.39 the following January and £4.46 that March, when I sold shares worth two thirds more than I had put in. Less happily, these non-yielders languish at 48p today, valuing this business at £305 million.
Similarly, I first invested in London’s tonic-making tiddler, Fever-Tree Drinks (FEVR) at £2.11 in 2015, before selling half my holding at £36.52 in 2018, as reported here. The shares had gone a bit flat to trade at £7.71 on Monday, so I bought some more, yielding 2.2 per cent income, before they went ex-dividend on Thursday.
None of the above six Brit stocks is bound to do well but all of them are priced far below their peaks and/or more modestly than foreign rivals. Only you — and Mr Market — can decide whether they offer good value or are cheap for bad reasons.
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What have the graphene-maker, Versarien (VRS), the biotechnology investment trust Schroders Capital Global Innovation (INOV) and the gas exploration outfit Helium One Global (HE1) got in common?
They are the very worst of Cowie’s Clangers — or shares whose price fell by more than 10 per cent after I invested — and cautionary proof that buying British is no guarantee of sterling returns.
Contrary to what some folk seem to imagine, this column is not intended to brag — well, not all the time — but aims to report the rough as well as the smooth of stock markets.
Step forward Versarien, makers of a “wonder material” said to be stronger than steel by the University of Manchester 20 years ago. Unfortunately, graphene remains a solution in search of a problem and VRS shares I bought for £1.77 in 2018 cost just 0.08p today. Ouch!
Next worst is Helium One Global, which drills holes in Tanzania, based on research by the universities of Durham and Oxford. Sad to say, hot air is no substitute for helium and shares I bought for 10.6p in 2021 have deflated to 0.93p. Please don’t laugh.
Diversification diminishes the pain slightly at Capital Global Innovation, another bleedin’ universities spin-off. Stock I bought for £1 in 2015 now costs 10.1p.
What have I learnt from this terrible triumvirate? Versarien and Helium One remind me to beware “moonshot” hit-or-miss investments. Capital Global Innovation was launched by the “star fund manager” Neil Woodford and serves as a warning against marketing hype.
Restricting my investment in each of these three to 1 per cent or less of the fund was the only thing I got right. That’s enough to care but not enough to lose sleep at night.
Full disclosure: Ian Cowie’s shareholdings