3 undervalued shares for May

With concerns about inflation, a looming recession and the war in the Ukraine weighing heavy on the markets, it can be difficult to know where to invest.

One option can be to look for shares in solid companies, which for some reason are trading at a discount. This may be because they have disappointed over the short-term or because outside pressures may have contributed to the shares being downgraded.

Here are three companies shares we think look undervalued right now.

Shares in Meta may be worth snapping up

Shares in Meta Platforms Inc (All Sessions) company are down 36% this year to $198.62. The technology titan, which recently changed its name amid much fanfare to Meta from Facebook, has faced a great deal of scrutiny lately from global regulators and lawmakers.

Last year’s whistle-blower report that the company sat on research that showed its social media platform Instagram was damaging to teenagers’ mental health – and that it has struggled to take down hate speech - hasn’t helped matters.

Meta is also facing a more hostile regulatory environment in Europe, which is seeking to rein in the power of the big technology companies through its Digital Markets Act. Full-year results in February were also disappointing, with Facebook shedding daily active users for the first time. And, while first-quarter results were more upbeat, they still missed analysts’ forecasts in terms of earnings per share.

However, some fund managers believe that technology is the new safe haven for investors during difficult times – as utilities and telecoms used to be.

And, while some commentators may be sceptical about the value placed on the Metaverse by boss Mark Zuckerberg, others firmly believe it is the future and many companies and advertisers are already investing heavily in the space. Plus, although Meta may face some regulatory hurdles and competition from TikTok, it is a behemoth and the present hurdles are not insurmountable for the company.

As chief operating officer Cheryl Sandberg recently told investors at the first-quarter results, while Meta thinks “these times are challenging, over the long run, we do have a very strong competitive advantage when you look across the opportunities advertisers have to advertise both offline and online.”

Although it might take a while for Meta shares to receive a rerating, the present dip could represent a buying opportunity for investors.

ITV shares come at a discount

Shares in ITV have almost halved this year, falling 45% to 68.62p. The slump is thought to be due to the broadcaster and production company’s strategic move to invest heavily in its streaming business ITVX. It plans to plough £1.23 billion into the streaming arm this year and an additional £1.35bn in 2023. The service launches in the fourth-quarter this year.

Some analysts are concerned that consensus earnings forecasts overestimate the likely success of the venture and that the amount it is spending on content is dwarfed by that available to streaming giants, such as Netflix and Disney. Analysts at Berenberg Bank fear that ITV’s management do not appreciate that the launch of the streaming channel could hit ratings for its conventional channels.

However, ITV’s management think ITVX will double digital sales at the company to £750m by 2026. Its recent full-year results were solid, with sales up nearly 25% to £3.5 billion and EBITDA (earnings before interest, tax and amortisation) up over 40% to £813 million, thanks to a recovery in advertising.

The company’s recent first-quarter trading update last week was also strong, with digital sales up 24% and advertising revenues up 16%. While the cost of living crisis and inflation could affect input costs and advertising, the share price dip suggests the bad news may already be in the price.

NatWest shares offer a solid dividend yield

Shares in the bank are likely to be attractive to income seekers, given they currently yield a generous 4.8%. With its planned share buyback scheme of £750 million and further programmes worth £2bn scheduled for this year and next year, analysts say this brings the dividend yield on the shares closer to 13%.

NatWest shares have languished for years after it had to be saved from bankruptcy during the financial crisis by the government. However, it has almost completed its rehabilitation and is back from the brink, boosted by a buoyant housing market and cost cutting strategy. What’s more, the UK government is no longer its biggest shareholder.

Analysts at Bank of America recently hiked their price target on the shares from 335p to 360p. The group is also likely to benefit from recent interest rate hikes. At 209p, the shares are worth buying for the long-term.

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