3 UK Stocks For December's Watchlist

UK stocks have underperformed relative to their European peers, but that might mean there is still time to get in on the Santa rally.

The Eternal Quest for Value

The FTSE 100 is more insulated from the domestic market than other blue-chip indices. That can be an advantage if the home market is facing challenges. However, due to their overseas exposure, the UK's recent better performance over Europe as measured in PMIs is not as well reflected among major UK-listed companies. But, some interesting bright spots offer potentially good value for investors looking to invest in Britain.

UK Stocks Showing Signs of Potential

Vodafone: Analysts' Target Show Share Price Undervalued

Its shares have been tumbling as it tries to execute a turnaround. In the process, it is now offering an 11% dividend yield as it continues to sell off assets to focus on its core market. Interestingly, it is selling its units in Europe to focus on the UK. The company has consistently paid its dividends through the troubled years, and the average share target price among 15 analysts is 95p, well above the 70.1p close on Wednesday.

Pan African Resources: Cheapest Production, Larger Profits

Amidst high inflation, it's generally preferred to hold gold. But gold doesn't pay dividends. Gold mining companies, on the other hand, do. And with the potential for bond yields to fall when central banks reverse recent tightening, gold stocks could see some substantial upside. A good candidate here is Pan African Resources. It currently has a dividend yield of 4.2%, with a PE ratio of 6.2. It produces gold for $1,284/oz, making it one of the cheapest producers in Africa, and therefore, any rise in the price of gold represents a rise in profit for the company.

Ferguson: Ready to Weather the UK Winter?

When temperatures fall, people think of heating. Not surprisingly, plumbing and heating provider Ferguson has risen 12 out of the last 13 years as winter starts to bite. It has a more modest dividend yield of 3.0% but will report earnings on December 5 and could provide an update. The company has seen its EPS grow 22% over the last five years, with the share price rising in tandem. People could be more interested in Ferguson's products this year as the UK winter is expected to be colder.

Best Technicals Goes to: Pan African Resources

Vodafone may be undervalued according to analysts, but it is also quite a risky play given it's trading at multidecade lows, and most legs down have been impulsive. On the other hand, Ferguson is near record highs. Despite presenting a potential upside to 14000p from 13200p at the time of writing, Pan African completed a wedge down to 11.70 in June, opening the door to a gain of over 50% compared to its 2020 record of 28p.

The share price has broken out of its consolidation range but still trades within the wedge pattern. If the upper wedge trendline gives way to bulls, 21p and 24p become the next milestones. Conversely, losing the 15p support may see further drops towards the bottom, pending clarity on 12.80.

Source: SpreadEx / Pan African Resources

Key Takeaways

Some UK stocks could be worth considering in December. Despite underperforming compared to European stocks, the UK market may still offer opportunities for a Santa rally. According to analysts, Vodafone is undervalued and offers a high dividend yield; Pan African Resources, a low-cost gold producer, could benefit from potentially rising gold prices; and Ferguson has historically performed well during colder winters. Technical analysis suggests that Pan African Resources has the best potential for gains.