A good place to hide? UK value stocks offering potential upside

• In a world of 5% bond yields investors may be seeking value stocks over growth

• UK value stocks have outperformed the S&P 500 for 1, 3 and 5 years and are offering discounts relative to median price-to-book ratios

• Industrials, Financials, Utilities, Real Estate, Healthcare, Energy, and Materials are arguably most undervalued

One of the most surprising stats I saw recently was that UK value stocks have beaten the S&P 500 for the last 5 years.

The other thing that's caught everyone's attention is the sharp rise in bond yields. No one likes 10yr yields at 5% but underloved stocks might have their time to shine. It could be a good moment to check in on some UK value stocks.

Are they even that unloved? Using the MSCI United Kingdom Value Index (USD net returns) as a proxy for UK value stocks and the S&P 500 Total Return Index (USD) as a proxy for the US market, the comparison looks roughly as follows (correct up to end of August).

What this means

The common narrative over the last decade has been that the S&P 500 massively outperformed UK equities. That's true over longer periods, especially from 2010 to 2022, driven by US mega-cap technology.

However, over the most recent 1, 3 and 5-year periods in USD terms, UK value stocks have actually outperformed the S&P 500, helped by:

• Strong performance from banks such as HSBC, Barclays, NatWest and Lloyds.

• Energy exposure through Shell and BP.

• Mining and resources companies.

• A rebound from very depressed post-Brexit and post-Covid valuations. 

A few caveats

Returns are in USD, so UK investors would have experienced different returns in GBP. The MSCI UK Value index is relatively concentrated, with large weights in financials, energy and materials. 

Perhaps the most surprising statistic is the 5-year result: UK value has compounded at roughly 15.7% per year, versus about 12.7% per year for the S&P 500 total return index. Over five years, that translates into approximately a 108% cumulative gain for UK value versus about 82% for the S&P 500.

This is a good example of how style factors can matter more than geography. The winner recently has not been "the UK" generally, but specifically the ‘cheap’ UK value segment.

Obviously deep value stocks by definition haven't done so well. The MSCI United Kingdom Value Index is dominate by a few large cap FTSE names like HSBC, Shell, Unilever and other blue chips. Delving a little further beneath the large cap layer we can find some value out there that could be worth a look.

Sectors and valuation case

Domestic-oriented stocks on the FTSE 250 are trading at 20% discount to  long-term median on a price-to-book basis. They trade roughly 12x on a forward price-to-earnings (PE) basis, below the average. 

A recent spate of takeovers and take-privates points to compelling names trading at a discount.

Industrials, Healthcare, Energy, Materials, Utilities and Financials stand out versus global peers, notes Barclays.

Earnings growth remains good, supporting the investment thesis and underpinning why banks believe they are not value traps. UBS raised its 2026 earnings growth forecast for the UK to 16% from 11%, and forecasts 9% earnings growth in 2027.

Screener

Using Bloomberg data (correct as of 17 Sep 2026), I've screened these sectors for a few names that trade at a discount on a price-to-book (P/B) basis vs the 5yr median and added a return on equity (ROE) filter to show up profitability - the idea is to look for a high P/B discount coupled with high ROE.

Industrials

The most represented sector. IAG (33% discount, ROE 44%) and Experian (32% discount, ROE 28%) stand out for combining deep de-rating with high profitability. Spirax, Bunzl, and Howden Joinery offer more moderate discounts but with consistently solid ROEs — which is sign they may be less likely to be value traps. Rentokil screens at a 31% discount with ROE near 9%, reflecting post-acquisition integration concerns that have weighed on the multiple.

Financials

Foresight Group (48% ROE, 16% discount) and St James's Place (38% ROE, 26% discount) are the highest-profitability names. 3i Group and ICG offer more modest discounts but with durable returns. Ninety One screens at a 37% discount — the deepest in the sector — with ROE of 29%.

Health Care

Genus is the standout: 37% P/B discount with ROE of 46%, the highest in the screened universe. Hikma offers a 22% discount with ROE of 15%, consistent with the commodity-heavy FTSE 100 catalyst theme given its generics exposure.

Utilities

Telecom Plus screens at a 58% discount with ROE of 31% — the most compelling combination in the sector. TRIG (Renewables Infrastructure Group) trades at a 23% discount with ROE of 17%, relevant to the energy transition angle.

Real Estate

All four names trade below book value, consistent with the persistent FTSE 250 domestic de-rating theme. Safestore and Big Yellow are self-storage REITs with modest ROEs; Grainger (residential rental) screens at a 34% discount.

Energy

Harbour Energy is the sole Energy passer — 29% discount, ROE 7%. Directly relevant to the higher oil prices catalyst thesis given its North Sea production profile.

Adding in another screen for dividend yield and free cash flow yield to the highest scoring names for ROE there are some names that stand out. FCF yield is a useful marker for dividend coverage.

IAG sits on a FCF yield of 18.5% — exceptionally high for an industrial/airline name, suggesting the market is pricing in significant ongoing risk despite strong cash generation. Combined with its 33% P/B discount and 44% ROE from the earlier screen, it presents a compelling value case if the recovery in travel demand holds. This depends on the inflation story emerging from the Middle East of course.

Telecom Plus has a 6.1% dividend yield — well-covered by a 16.6% FCF yield — alongside the deepest P/B discount in the Utilities screen (58%). The dividend appears highly sustainable relative to cash generation.

Experian stands out as software name caught up in the AI-related rerating of the space. Its moderate FCF yield of 6.6% covers a 1.9% dividend, which is consistent with a business that reinvests heavily for growth. The P/B discount of 32% is notable given the franchise quality.

Genus has the thinnest yields — 1.5% dividend and 4.3% FCF yield — reflecting its reinvestment-heavy model in animal genetics. The investment case rests more on the ROE (46%) and P/B re-rating potential than income.

Beyond the UK universe there are lots of factor-focused ETFs which screen on cash flow and other valuation measures. iShares has the World Value Factor ETF, which picks about 400 companies from the MSCI World index that present as undervalued relative to a range of fundamental measures.