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Underpriced Securities in "Uninvestable" Sectors: A Look at Standard Chartered, International Airlines Group, and Marks & Spencer
In the world of British stocks, sectors like banking and airlines have been deemed "uninvestable" by some due to their inherent risks and challenges. However, a closer look reveals pockets of underpriced securities with potentially attractive total returns.
Standard Chartered (LSE: STAN)
This bank, with a focus on emerging markets, notably Asia and Africa, is often compared to HSBC in terms of growth potential but with unique regional risks. While there are no specific current price targets for STAN, comparable UK banks like HSBC trade at low price-to-earnings ratios (around 9), indicating possible undervaluation, especially given their dividend yields (e.g., HSBC’s 5.5%) and exposure to emerging market growth.
Two-thirds of Standard Chartered's profits come from corporate, commercial, and institutional banking, while one-third comes from consumer, private, and business banking. The bank has undergone a process of ridding itself of bad loans, changing its underwriting culture, and streamlining the sectors and countries it operates in.
International Airlines Group (LSE: IAG)
Airlines remain a challenging sector due to high operational leverage, fuel cost volatility, and sensitivity to economic cycles. IAG, the owner of British Airways and Iberia, has faced structural challenges including rising fuel costs and economic uncertainty. Despite these challenges, IAG commands a 58% market share of traffic between Heathrow and the US.
While specific analyst forecasts are not detailed here, airline shares often trade at depressed multiples due to these risks, possibly representing underpricing. The overall UK market (GB100) shows a moderate positive trend year-on-year (+9.96%) but slight recent declines, reflecting mixed investor sentiment toward cyclicals like airlines.
Marks & Spencer (LSE: MKS)
Retail, especially legacy retailers like Marks & Spencer, has been considered "uninvestable" by some due to competition, shifting consumer habits, and inflationary pressures. However, M&S has been implementing turnaround strategies.
At M&S, Archie Norman replaced 50% of the senior management, remade the store portfolio, and updated the clothing lines for modern and younger customers. In food, the board kept the premium positioning but broadened the offering to suit a weekly shop.
Although no direct valuation or forecast data was found here, M&S typically trades with modest valuations relative to growth sectors, potentially offering upside if turnaround efforts succeed and consumer conditions stabilize.
Context from UK Market and Comparable Banks
The broader UK market (GB100 index) grew ~10% over the past year but currently shows some moderate downward pressure, signaling cautious investor sentiment. UK banks like HSBC, Lloyds, Barclays are seeing strong rallies in 2025, with Lloyds up ~50%, HSBC benefiting from its Asian focus, and Barclays remaining stable at ~374p share price. These banks trade at low P/E ratios (~9 for HSBC) with attractive dividend yields (~5.5%), indicating a sector seen by some analysts as undervalued with reasonable upside.
Investment Prospects Summary for These British "Uninvestable" Sectors
| Stock | Sector | Valuation & Signals | Investment Outlook | |---|---|---|---| | Standard Chartered (STAN) | Banking (Emerging Markets Focus) | Likely undervalued based on low P/E and emerging market exposure; dividend potential; regional risks remain significant | Potentially attractive for income and growth, subject to macro risks in Asia/Africa | | International Airlines Group (IAG) | Airlines | Sector is fundamentally challenged; share prices may be depressed; cyclical risks high | High risk, value play if economic recovery or cost controls improve; cautious stance recommended | | Marks & Spencer (MKS) | Retail | Modest valuations; turnaround in progress amid inflation concerns | Possible opportunistic pick if strategic changes work; moderate risk due to sector headwinds |
In conclusion, the "uninvestable" sectors in UK stocks like banks and airlines contain pockets of underpriced securities with potentially attractive total returns driven by undervaluation and dividends (banks) or potential cyclical recovery (airlines). Retailers such as Marks & Spencer may yet surprise if their transformations gain traction. However, these sectors require careful selection and risk management given their inherent vulnerabilities and economic sensitivities.
Investing in underpriced securities in sectors once deemed "uninvestable" like banking, airlines, and retail could potentially yield attractive total returns, as seen with Standard Chartered, International Airlines Group, and Marks & Spencer. Standard Chartered, with its focus on emerging markets, might offer undervalued growth potential due to a low P/E ratio and high dividend yields like HSBC, while International Airlines Group could present a value play due to cyclical risks and depressed share prices. Marks & Spencer, despite being in the challenging retail sector, could offer an opportunistic pick if strategic changes work to drive growth. However, careful selection and risk management are crucial given the inherent vulnerabilities and economic sensitivities of these sectors.
