So many investors in UK shares just follow the herd. But buying the same thing as everyone else doesn’t always yield great results.
Sir John Templeton perhaps said it best. “If you want to have a better performance than the crowd, you must do things differently than the crowd.” Sometimes, that means taking a calculated risk on an undervalued company.
So I’ve chosen two UK shares I think will give investors the chance to generate outsize returns.
UK shares bounce back
UK stock markets have revived from the crushing lows of 2020. That means price-to-earnings ratios have rocketed as nervous investors pump cash back into stocks and shares. It also means that companies that were once bargains are now fairly valued. So to make the most of my capital, I want to buy undervalued shares and watch them grow over time.
The first of the UK shares I think is well undervalued is financial technology firm ThinkSmart (LSE:TSL). This is a £70m market cap company, so it’s down at the lower end of what I’d normally buy. The smaller the business, in my eyes, the higher the risk.
On paper, the underlying business looks pretty poor. In fact, revenues appear to be dying out. And bosses say they are winding down their legacy business of renting out financial technology products.
So why buy? Well, after developing a ‘buy now pay later’ payment platform called ClearPay, in 2018, TSL sold 90% of it to £34bn Australian giant AfterPay. The 10% that TSL retained keeps growing in value. The more that AfterPay grows, the more TSL’s stake is worth.
How it happened
ThinkSmart shares are up almost 200% in the last 12 months to 66p. However, they are still a bargain, based on the net value of the company’s assets (NAV). In full-year results to 31 December 2020, released on 4 March 2021, ThinkSmart reported its NAV at 109.4p. Today’s share price is a near-40% discount!
I don’t think I’ve read any investing website that’s focused on ThinkSmart recently. So buying here, I’d be going against the crowd. I’m happy with that.
The second set of UK shares I’d buy now is the £650m market cap Bank of Georgia (LSE:BGEO). It looks to offer huge value today. Forward P/E is just 4.6, which is tiny, and the business expects earnings per share to hike over 90% next year. And after paying no dividends in 2019 or 2020? Yield is returning for the European bank’s shareholders. In fact, in 2021, dividend yield is expected to hit 5.6%, with up to 6.7% in 2022. I really like to see margins of nearly 50% in this business. It says to me that the bank is making pretty outstanding profits on the money it spends.
While Georgia is still a developing nation, its economy is going great guns. Poverty has declined rapidly in recent years, according to the World Bank. And that means more loans for business expansion. And more growth for the Bank of Georgia to get involved with.
If the country fails to come out of Covid-19 in one piece, BGEO shares will likely fall. That’s a common risk with investing in developing countries, as its infrastructure can’t compete with the rest of the EU. Still, I’m putting these UK shares are at the top of my buy list.
Tom Rodgers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.