These battered UK shares could explode when the stock market recovers

It might seem strange to talk of a market recovery when all seems grim. However, I think times like these are a perfect opportunity for me to stock up on great UK shares before the dark economic clouds (inevitably) disperse. Here are two examples.

Fallen star

The share price of trainer and sportswear retailer JD Sports Fashion (LSE: JD) has been out of form in 2022, so far. In fact, the company’s value has almost halved. This smells of ‘opportunity’ for me.

To be clear, I don’t think the market has got this wrong. JD is always likely to fare badly when discretionary incomes are squeezed. At times like these, a new pair of expensive Nike or Adidas trainers aren’t quite so essential.

There are other factors. Investors don’t seem convinced by ex-B&Q man Régis Schultz taking the top job. And being forced to sell the Footasylum brand for far less than what it paid for it doesn’t exactly inspire confidence.

Priced in?

But how much of this is reflected in the price of the shares? I reckon quite a lot. As I type, JD trades on a price-to-earnings (P/E) ratio of just nine. That’s cheap compared to UK shares as a whole and still reasonable for the consumer cyclical sector.

So long as next month’s update shows the company is hitting its already-conservative targets (and expectations aren’t revised again), I think this could prove a bargain… in time. Perhaps drip-feeding my money might be appropriate here.

Quality stock

Another stock I’d buy is kitchen supplier Howden Joinery (LSE: HWDN). Again, this may seem like an odd choice given the state of consumer confidence at the moment. Like JD, investors have been fleeing the shares en masse. The company’s value is down almost 40% in 2022.

Personally, I find the investment case here even more attractive. In addition to its strong market share in an arguably niche market, Howdens regularly achieves high returns on the money it invests in its business.

It’s this (otherwise known as ROCE or return on capital employed) — not earnings over three, six or 12 months — that ultimately allows a company to compound in value over time. It’s this that master investors like Warren Buffett and Terry Smith pay more attention to.

The shares now change hands for 11 times earnings. As tempting as that sounds, this valuation could still come back to bite me if we have a nastier-than-expected recession on our hands. So, yes, there’s still risk here.

On the flip side, there’s a secure-looking 3.4% dividend yield in the offing. That’s obviously not enough to offset inflation. However, being paid to wait is better than not being paid at all.

Buy now, profit later

How long will that wait be? No one knows. But remember that the market is forward-looking. By the time we get confirmation that the economy has turned the corner and thriving again, share prices will already be higher. Hence my interest in at least starting to buy these stocks now.

Profitable investing can be achieved without timing the markets perfectly. Instead, I need to invest with a margin of safety that’s sufficient to swing the odds of a good outcome in my favour.

Having fallen so far, I think this could be the case with these UK shares.

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