UK markets have hardly been the most popular place for global investors to put their hard-earned capital of late.
In fact, since 2016, investors have sold more UK stocks than they’ve bought, and not by a small margin.
It’s also been consistently overshadowed by its bigger brother across the pond, with US markets stealing much of the limelight in recent years.
But 2025 has gotten off on a more positive footing for UK markets.
The FTSE 100, the UK’s flagship index, is closing in on all-time highs, and the smaller FTSE 250 isn’t far off either.
Here are three UK stocks we think offer attractive opportunities.
This article isn’t personal advice. If you’re not sure an investment is right for you, seek advice. Investments and any income from them will rise and fall in value, so you could get back less than you invest. Ratios also shouldn’t be looked at on their own. Past performance is not a guide to the future.
Investing in an individual company isn’t right for everyone because if that company fails, you could lose your whole investment. If you cannot afford this, investing in a single company might not be right for you. You should make sure you understand the companies you’re investing in and their specific risks. You should also make sure any shares you own are part of a diversified portfolio.
BAE Systems
BAE Systems, a name from our 2023 Five Shares to Watch, has had a strong start to 2025 – full-year guidance for high single-digit growth in sales and underlying operating profit has been reiterated.
With nearly 50% of BAE’s sales coming from the US, there had been concerns that defence spending could be held back as the Department of Government Efficiency (DOGE) clears out wastage from the system.
But as the story develops, it looks like BAE’s exposure to this rearrangement of priorities is low. In fact, the group looks well-positioned to tap into new funding available for some of the administration’s favoured big-money projects, like the ‘Golden Dome’ missile defence system.
On this side of the Atlantic, NATO members are expected to announce further increases in defence spending in late June 2025.
These increases look set to span decades and are likely to see BAE’s order book swell to new heights (2024: £77.8bn). Because these orders are typically long-cycle, with programs spread over many years, it gives BAE great revenue visibility.
However, BAE’s profitability hinges on its ability to estimate future costs. The long-term nature of contracts means that the related risks can change over time, so BAE will need to constantly adapt to protect its bottom line.
BAE’s valuation has risen recently and now sits above its long-run average. But this new cycle of increased defence spending could bring a long runway of growth for BAE, meaning we don’t see the valuation as too demanding.
Greggs
Greggs featured in our 2024 Five Shares to Watch and despite some headwinds over the past six to eight months, we still think there’s an attractive opportunity at hand.
Last year’s UK budget introduced a string of new costs for UK-focused businesses like Greggs, expected to tally in the tens of millions. Add in some nervousness around slowing sales growth early in the year and shares have underperformed the broader market this year.
But we see those challenges as something the business can overcome, as opposed to longer-term drags on its potential for growth.
Improvements from the start of the year are already starting to come through and recent results were encouraging.
Consumer spending trends are improving, volumes ticked higher, and market share was steady.
There have also been some price hikes to help manage the higher costs – though Greggs will need to take this slow to retain its value appeal.
Undeterred by external challenges, Greggs is pressing on with its expansion plans. This includes opening a net total of 140-150 new stores this year, as well as ongoing improvements to its delivery services and opening times to attract more evening customers.
Longer-term growth still looks promising, and we like Greggs' lower price point with cost-conscious consumers. The valuation is more attractive than it’s been in a while, but consistent growth will be needed to lift sentiment.
Lloyds
Lloyds also featured in our 5 Shares to Watch in 2024, and while sentiment toward UK banks has significantly improved since then, we still think the valuation offers some potential.
The reasons we liked Lloyds, and other UK-focused banks, still hold true today.
Credit quality is much stronger than it’s been in the past, UK consumers are faring well, and the mortgage market is showing signs of improvement.
There’s also the structural hedge.
This is where banks like Lloyds were investing in bond-like products at near-zero rates a few years ago. As those mature and get reinvested at better rates today, the banks can snap up that extra income.
It’s big too, with Lloyds expecting an extra £1.2bn of hedge income in 2025.
If interest rates continue to fall that’ll be positive for lending volumes but a headwind for the banks more broadly – they tend to see margins fall when rates drop.
However, Lloyds’ deposit base looks like one of the most resilient in the sector and we think it’s well placed to manage the evolving rate environment.
The Achilles heel for Lloyds is the ongoing investigation into motor insurance commission. There’s a ruling due in July and then most likely some form of compensation.
We think the valuation, in addition to existing provisions, already builds in more than enough buffer.
All in, Lloyds has a good base to support returns to shareholders over the next few years. The motor finance investigation is the most pressing near-term risk to keep an eye on.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Past performance is not a guide to the future. Investments rise and fall in value so investors could make a loss. Yields are variable and not guaranteed.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.
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