Should you purchase these cheap British stocks?

Healthcare companies and high street favorites like Sainsbury's and Greggs are among the companies whose stocks are heavily discounted

Everyone enjoys a good deal, especially if it has the potential to yield substantial long-term gains.

British stocks have long lagged behind their American cousins in terms of growth; over the last five years, the FTSE 100 has increased by 45%, while the SandP 500 has more than doubled this growth, reaching about 97%.

However, over the previous five years, a few UK stocks have continuously outperformed the overall market and produced higher long-term returns than the FTSE 350 average.

In spite of this, IG's analysis shows that many of these companies are trading at steep discounts to their historical valuations, and they may be able to outperform the best funds available.

These businesses include well-known high street brands like Sainsbury's and Greggs, but they also include engineering and healthcare companies like Spire and Smiths.

The undervaluation is a "classic case of strong performance being ignored by the wider market," according to Chris Beauchamp, chief market analyst at IG.

He stated: "BlackRock's Larry Fink recently pointed out that UK investors might have overlooked some of the quiet compounders closer to home because of the intense focus on US technology and the extremely volatile global macro environment."

According to Beauchamp, these companies are not cheap stocks because they are in trouble but still provide investors with value.

Now may be a good time to take advantage of cheap stocks because the UK government is determined to encourage more British retail investors to purchase British stocks by possibly lowering the cash ISA limit.

"For years, international investors have disregarded UK stocks, but that perspective is beginning to shift," Beauchamp stated. The UK stands to gain if international capital begins to turn back into value.

We look at some of the best deals in the UK and ask if you should take advantage of the savings.

Smith's Group.

Instagram claims that shares of Smiths Group are currently trading at a discount.

Right now, the engineering firm's share price is only 2,044p.

With its price to earnings (P/E) ratio at 23 and its share price rising by 18% since the start of 2025, IG claimed that it is low despite the group's impressive performance.

Although this isn't always the case, a low P/E ratio may suggest that a particular stock is cheap. Furthermore, prior performance does not guarantee future outcomes.

Investors in Smiths will have received five-year returns totaling 93.7% due to the company's strong and consistent growth over the last several years.

IG's share price is 91 percent lower than Smith's five-year long-term average when comparing this P/E ratio.

Sainsbury's.

IG discovers that its shares are trading at a substantial discount, even though Sainsbury's is one of the most recognizable supermarket chains in the United Kingdom.

Sainsbury's stock is currently trading at 27p9p, and the company's P/E ratio is 15. Its stock price has increased by a meager 2 percent since the beginning of 2025, but investors have received 91.8% in total returns over the last five years.

According to IG, there is a 64% discount on shares when comparing the supermarket chain's current P/E ratio to its five-year average.

Group Drax.

Although Drax Group isn't nearly as well-known as Sainsbury's, it shouldn't be disregarded because its shares are currently only 61p.

The power generation industry has had a difficult start to 2025; since the year began, its share price has fallen by about 4 percent. Despite this, the company has provided investors with five-year total returns of an astounding 278 percent.

According to IG, the group's P/E ratio of 4 is lower than that of many other companies on the list, but it still represents a substantial 60% discount to its five-year average.

Gregg's.

Having been established in Newcastle in 1939, Greggs now operates bakeries all over the nation, enabling British citizens to savor their renowned steak bakes and sausage rolls wherever they are.

However, even though the bakery chain has experienced rapid growth in recent years, IG thinks their shares are still cheap.

Although Greggs' stock price is currently at about 2:08, the company's stock price has dropped by 2:09 percent since the year started.

Even though the stock has had a difficult start to the year, IG thinks it is trading at a 30 percent discount to its five-year average, even though its P/E ratio is 14.

The FTSE 350 companies that have outperformed the market over the last five years are listed in the table below, arranged by their profit to earnings ratio discount.

Source: Instagram, data retrieved May 16. Future outcomes cannot be predicted based on past performance.