How to invest in value stocks – 3 share ideas

Greggs is one of the largest food-on-the-go retailers in the UK, with more than 2,600 locations across the country. But its valuation’s come under some pressure over the last 12 months, due to weakening investor sentiment as revenue growth has slowed slightly.

At the same time as the outlook for the top line has softened, the cost picture has gotten worse too. Labour’s Autumn Budget raised company taxes and increased minimum wages, adding tens of millions to the cost bill.

Relying on high-street shoppers and commuter traffic isn't sustainable. To keep long-term growth targets on track, the company will need to increase its presence at travel locations.

To be clear, these are key challenges and will take a lot of work to overcome. But we think the hit to the valuation over the last year looks overdone at this point.

On the revenue front, performance early in the year was hampered by bad weather. But with between 140-150 net new store openings planned this year, Greggs is still expected to grow its top line by high-single digits this year.

New menu additions are performing well and giving customers more reasons to visit throughout the day. Improved delivery services and later opening times are also attracting more evening customers, with half of Greggs’ shops now open until at least 7pm.

One of Greggs' key strengths is that it's a lower-value treat. That makes it more resilient during spells when incomes are being flexed. Leaning into that through the loyalty app is another valuable avenue to drive sales growth.

We continue to be impressed by Greggs’ proposition. We think the current valuation weakness presents a better opportunity for potential investors than there’s been for some time. And while there are some signs of sales growth picking up again, we would caution that the near term looks uncertain.

GSK has a much less demanding valuation and more attractive yield than many of its peer group. But that isn’t the only thing the pharmaceutical giant has going for it.

GSK’s had a good start to the year, making good progress towards its goal of five new regulatory approvals in the US in 2025.

Further out, it expects 14 new drug launches over the next six years, each with a peak annual sales potential of over £2bn. Therefore, we think there could be some upside to the 2031 revenue target of £40bn (2024: £31.4bn). But of course, there are no guarantees.

A key area for GSK is HIV treatments, and they’re seeing some impressive growth. A strong clinical pipeline of next-generation HIV therapies should further help bolster GSK’s market position.

Sales of cancer medicines, although relatively small, are growing rapidly. There are strong growth drivers for existing products in the franchise, and an exciting research programme.

There are some challenges to keep in mind though.

Strong growth in vaccine sales last year has made for some tough comparable numbers, which have weighed on investor sentiment of late.

We’re cautiously optimistic that these woes will move into the rear-view mirror over the second half of 2025. But we’re also keeping one eye out for potentially damaging changes to vaccine policy in Washington.

Tariffs have been another area of worry. With the US being GSK’s biggest market, tariffs on its products entering the country could seriously disrupt pricing.

GSK stated it should be able to limit these impacts through changes to its supply chains and productivity improvements, but the picture can change quickly.

The balance sheet is in good shape and helps underpin the current 4.7% forward dividend yield.

GSK’s valuation is sitting well below its long-run average and those of its peers, reflecting some scepticism around its ability to commercialise its research efforts.

The company’s working hard to put that right, and if it’s successful, investors could be rewarded.

However, drug development comes with relatively high risks that investors should be prepared to accept.

Persimmon is another name that’s been building value under the radar.

The housebuilders' year started well, with sales rates edging higher during the spring selling season.

If interest rate cuts come through as expected over the rest of 2025, Persimmon’s likely to see a further uptick in buyer activity. That’s because falling rates are normally a tailwind for buyers, increasing their purchasing power.

We’re pleased to see average selling prices ticking higher and the order book growing at pace too. It takes a bit of time for these orders to convert to sales, but the positive momentum should feed down to the bottom line.

Markets are currently forecasting pre-tax profits to grow by nearly 14% to £432mn this year.

The in-house materials businesses, which we see as a key differentiator, should help on the profitability front too. They give Persimmon quick and cheaper access to key materials. When Persimmon’s able to use its own bricks, tiles and timber, it saves around £5,500 per plot.

The balance sheet looked to be on solid ground last we heard, and improving cash flows help support the current 4.9% dividend yield.

Keep in mind though that there’s still plenty of macroeconomic uncertainty. Given that operations are focused on this side of the Atlantic, Persimmon has no direct exposure to tariffs. However, if tariffs cause a global economic slowdown, we’re likely to see demand for its houses weaken.

Persimmon’s valuation is sitting well below the long-run average, which is attractive given the emergence of green shoots in the housing market. With its low average selling prices and first-time buyer bias, it looks well-placed to benefit from any potential government support.

But economic headwinds could delay activity in the sector from ramping back up into full flow, which could hold back any revival in investor sentiment.