1 big reason to be bullish on UK stocks
Nearly everyone knows that UK stocks trade at a discount to their US counterparts. Thatâs true whether we look at the FTSE 100 compared to the S&P 500 or even at valuations in different sectors.
Source: JP Morgan Guide to the Markets UK Q4 2025
Until recently, that hasnât been much use to investors â UK shares have been relatively cheap, but there hasnât been any sign that the gap might be set to close. That, however, might be changing.
Growth
By themselves, valuations generally arenât what cause share prices to move. Itâs a cliché that the stock market can stay irrational for longer than investors can stay solvent â but it is true.
In general, investors need something to bring their attention to cases where equities are trading below where they should be. And earnings growth is often a good candidate for that role.
Source: JP Morgan Guide to the Markets UK Q4 2025
Given this, I think thereâs cause for optimism about the outlook for UK shares. According to data from JP Morgan, analysts are expecting UK companies to grow earnings substantially in 2026.
In fact, despite a significant gap in valuations, there isnât much difference in growth expectations on either side of the Atlantic. And I think thatâs a big reason to be bullish on UK stocks.
Packaging
One company that could use an earnings boost is Macfarlane Group (LSE:MACF). The firm both manufactures and distributes packaging to companies.
Earnings have been falling this year, especially on the distribution side of the company. There are a few reasons profits are down, including increased costs and a tough environment for businesses.
A big part of this is energy costs, which are an ongoing concern. The UKâs high electricity prices can weigh on demand for products â and the packages theyâre shipped in.
Macfarlane isnât in a position to do anything about this directly. But it can focus on building a strong competitive position for the long term and itâs been doing a good job of this recently.
Opportunity
I think the most interesting part of Macfarlaneâs business is its manufacturing division. This focuses on packaging for items that are difficult to ship and have high replacement costs.
The firm benefits from strong technical expertise and close customer relationships and this creates a barrier to entry for competitors. And this is a key long-term advantage.
At a price-to-earnings (P/E) ratio of 14, the current share price doesnât really reflect much in the way of growth. So if things pick up in the UK, I think the stock could do very well.
In the meantime, the 4% dividend yield is well-covered by free cash flows. And the company is actively using its excess capital to reduce its share count through buybacks.
Outlook
UK stocks have underperformed their US counterparts for some time. The main reason for this is that earnings growth has been stronger across the Atlantic, but this might be about to change.
Analysts are forecasting a significant lift in UK growth in 2026. And if this happens, I think the current low valuations means thereâs a decent chance share prices might follow.
At todayâs prices, I think Macfarlane is worth a look. It trades at a relatively low P/E multiple and if earnings pick up across the board, I expect the company to be in the action.
The post 1 big reason to be bullish on UK stocks appeared first on The Motley Fool UK.
Should you invest £1,000 in Macfarlane Group PLC right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Macfarlane Group PLC made the list?
More reading
- £5,000 invested in Greggs shares 5 years ago is now worth more than you might think…
- Should I offload Fundsmith Equity and buy a global or S&P 500 index fund instead?
- Yielding 9%, are Taylor Wimpey shares a dream passive income investment?
- Is a stock market crash imminent? Here’s how you could prepare
- No savings at 40? Consider targeting FTSE 250 shares to eventually turn £100 a month into £240k
JPMorgan Chase is an advertising partner of Motley Fool Money. Stephen Wright has positions in Macfarlane Group Plc. The Motley Fool UK has recommended Macfarlane Group Plc. 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.
