2 bargain stocks to buy today

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home

Have we seen the bottom in UK stocks? I’ve no idea. What I’m a little more confident about is that there’s no shortage of bargain shares available for me to buy following a pretty awful first seven months of 2022.

Out of charge

Singapore-based XP Power (LSE: XPP) develops and manufactures critical power control solutions for the IT, Healthcare and Semiconductor Manufacturing Equipment sectors. Once upon a time, it also helped power my portfolio to new heights. Sensing that the valuation was looking frothy (and having held for quite a while), I sold my holding for a lovely profit. Since then, the shares have tumbled.

Luck or skill? Probably a lot more of the former. Having halved in 2022 alone, however, I’m tempted to get involved again.

Multiple headwinds

Monday’s half-year results contained a few chinks of light. Order intake rose 23% to a little over £193m and demand for its products “remains strong” with a record order book.

However, XP Power’s revenue (£123.6m) actually fell back by 1% from the same period in 2021 once exchange rates were taken into account.

There wasn’t just one headwind. Over the six months, XP faced “industry-wide component shortages, a five-week Covid-19 lockdown in China, and extended component lead-times“. Throw in rampant inflation and you’ve got a pretty toxic mix.

As a result of all this, the company isn’t quite sure what to expect in terms of full-year numbers. I’m also a little worried that net debt has now “risen substantially” to £102m.

Nice price

As important as it is to take these issues seriously (and recognise that the share price could go lower), I think a lot is already priced in here. As I type, XP Power’s price-to-earnings (P/E) ratio has now fallen back to 13. That’s attractive for a market leader with quality hallmarks, with usually strong fundamentals and with customers that tend to stick around.

The interim dividend was also maintained, suggesting that management believes these pressures are temporary.

I would have no issue starting to re-buy a position now for the long term

Another bargain stock

A second bargain stock in my view is medical tech giant Smith & Nephew (LSE: SN).

This may seem like a controversial pick. The company’s shares have performed poorly in recent times. In fact, things are so bad that the FTSE 100 member’s valuation has now dipped below where it was back in March 2020 when the first UK lockdown was ordered.

What’s behind all this? Again, there’s not just one reason. Surging inflation and supply chain issues have reduced margins. However, a lot of elective surgery has also been postponed due to pressures on resources since Covid-19 first arrived.

Long-term hold

It’s clear new CEO Deepak Nath has got a challenge on his hands. Consequently, I don’t expect Smith & Nephew shares to rocket any time soon.

Notwithstanding this, I maintain that this could eventually prove to be a solid holding once normality returns — whatever that looks like. An ageing global population should be a significant growth driver, especially for its Orthopaedics and Trauma division that specialises in supplying knee and hip implants.

Considering its price/earnings-to-growth (PEG ratio) now comes in around one, I’d be comfortable buying the shares today.

The post 2 bargain stocks to buy today appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Smith & Nephew and XP Power. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.