Fund manager names 2 UK stocks he says look very attractive right now
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Investors should pay close attention to two very different U.K. stocks right now, according to SVM Asset Management's Investment Director Neil Veitch, who named financial services group Lloyds Bank and sports clothing retailer JD Sports . Speaking to CNBC Pro Talks on Thursday, Veitch explained his picks: Lloyds, he believes, will be able to weather a recession in Britain, while JD is attractive due to its global expansion which could boost medium-term growth. Lloyds For Lloyds, the U.K.'s steepening interest rate curve is an advantage as higher rates quickly translate into earnings and the creation of capital for the bank, Veitch argued. "You've got a bank that's still trading below book value with a rock-solid balance sheet." he said. Even a recession — which Veitch believes would be shallow — and associated credit losses should therefore be "manageable," he added. Book value is a gauge used by traders which highlights a company's balance sheet and helps gauge how expensive a stock is. Banking stocks are often affected by recessions as spending and investment is squeezed, and interest rates tend to fall, which would reduce profit margins on products like loans. On Thursday, the Bank of England said the British economy was already in a recession as it hiked interest rates in an effort to curb inflation. Analysts' opinion was previously split, with many not expecting a recession until later in the year. Lloyds' shares are currently trading at £48.69 ($55.18) — up by just 0.19% year-to-date. The bank is however still outperforming the FTSE 100 , as the index is down 2.76% over the same timeframe. JD Sports Shares of JD Sports are down considerably year-to-date, by 47%, leaving them at £114.45. The sports shoe and apparel retailer is therefore faring worse than the FTSE 100 overall. But Veitch believes investing could pay off in the medium term. "Its got a medium-term growth outlook, as I say, from the Europe and U.S. all trading on 10 times earnings. The risk for reward for us at these sorts of levels looks very attractive," he said. Ten times earnings means a stock is trading at a multiple that is equal to 10 times the company's earnings. The key here is JD Sports' global expansion, which is being encouraged by sportswear giants Nike and Adidas . "They see themselves as premium products, they want those products to be displayed and distributed in the appropriate manner and JD can do that, so they've been encouraging JD to expand outside the UK," Veitch explained. On Thursday, JD reported a 5% rise in global sales for the first half of 2022, in line with analyst forecasts. The company said it still expected to end the year with pre-tax profits, despite those declining by 19% year-on-year between January and July.