5 Overvalued UK Stocks

Famed value investor Warren Buffett sells stocks once they become overvalued. Using Morningstar ratings we reveal the UK companies that look expensive

Emma Wall 20 December, 2013 | 11:32AM
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Warren Buffett made his millions following the rules of value investing. Value investing is the art of buying stocks for less than their intrinsic value.

Businesses that have low cyclically adjusted P/Es are potential buys, and once P/Es rise those stocks get sold off.

"We fish in particular ponds of cheap stocks. Businesses often are cheap for a reason, but is that a good reason?  As value investors, we frequently find it's not," says value investor Nick Kirrage, fund manager at Schroders. "By investing in those businesses, when they're very out of favor, you can make significant returns for clients."

Disciplined value investors may wish to consider the fate of these UK stocks that have a one of two-star Morningstar rating, meaning they are overvalued. 

BT Group (BT.A)

Morningstar Overall Rating

BT Group, formerly known as British Telecom, is the incumbent phone operator and largest supplier of fixed-line phone services in Britain with about 42% market share. BT's external sales are split between global services (39%), retail (37%), wholesale (14%), and Openreach and other (10%). BT is the largest supplier of high-speed Internet lines, including lines it wholesales.

Prudential (PRU)

Morningstar Overall Rating:

Founded more than 150 years ago in London, Prudential PLC is the largest life insurer in the U.K. The company began doing business in Asia in the 1920s; today the region accounts for 40% of total sales. The Asian business is geographically diversified with attractive margins, whereas the U.K. and U.S. operations are built around narrow product mixes, but with growing distribution power. In addition to insurance products, Prudential PLC also provides asset management services in a range of markets including the U.S., Asia, and Europe.

Rolls-Royce (RR.)

Morningstar Overall Rating:

Rolls-Royce is one of the world's leading suppliers of jet engines to civil, defense, marine, and energy applications. In 2012, the firm generated £12 billion in revenue.

Sainsburys (SBRY)

Morningstar Overall Rating:

Sainsbury is one of the largest grocery store operators in the United Kingdom, with more than 550 supermarkets and 500 convenience stores. A vast majority of Sainsbury’s revenue comes from the sale of food products, although the firm also sells gasoline and general merchandise in multiple channels. Convenience stores represent a little more than 5% of Sainsbury’s total square footage, while traditional supermarkets represent the remainder.

United Utilities (UU.)

Morningstar Overall Rating:

United Utilities Group is primarily a holding company for United Utilities Water, the country's largest regulated water and wastewater utility serving nearly seven million customers in northwest England, including Manchester and Liverpool.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
BT Group PLC140.25 GBX1.45Rating
Prudential PLC644.00 GBX-0.09Rating
Rolls-Royce Holdings PLC548.80 GBX2.50Rating
Sainsbury (J) PLC264.80 GBX-0.53Rating
United Utilities Group PLC Class A1,034.00 GBX1.12Rating

About Author

Emma Wall  is former Senior International Editor for Morningstar

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