Three underappreciated UK stocks on the British stock exchange

Three UK stocks are chosen by Fidelity Special Values portfolio manager Alex Wright to invest in

Using a contrarian value-investment strategy, the Fidelity Special Values investment trust concentrates on underappreciated businesses with room to grow. Before evaluating a company's prospects over a three to five-year period, we assess its downside protection.

Although there is a structural bias towards mid- and small-cap companies because this is an understudied area where we find attractively valued stocks with good turnaround potential, we look for opportunities across the whole range of UK stocks.

It may take some time for investors to believe the story and for a turnaround to occur. We are not dependent on the recovery of a single holding when we have a diversified portfolio. We aim to provide outperformance in a variety of market conditions by assembling a portfolio of stocks at various phases of the recovery process.

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Three UK stocks were overlooked.

DCC (LSE: DCC), a UK stock that provides technology, energy, and healthcare services to other businesses, is undergoing restructuring. It intends to concentrate primarily on the energy sector, which has a proven track record of producing alluring returns on investment and expanding through acquisitions. Due to the shares' historically low valuation and management's significant share buybacks, which are highly accretive to earnings power, the company satisfies our downside criteria.

Because of worries about the structural deterioration of the group's fossil fuel distribution business, market sentiment has been poor. But we think these concerns are exaggerated, and the substitution effect will probably happen more slowly than anticipated.

Because of the industry's high level of consolidation, well-established companies are able to maintain high profit margins and offer alluring returns. In the meantime, DCC keeps growing its renewable energy operations, which include solar installation and other energy-saving measures. DCC stands out as a strong turnaround opportunity due to its defensive qualities, which are similar to those of utilities, and appealing valuation.

Frasers Group (LSE: FRAS), best known for Sports Direct, owns a wide range of retail brands, including USC, House of Fraser, Evans Cycle, and Flannels. Its distinctive business model is its strongest point. Frasers Group supports margins and profitability by purchasing discounted stock in bulk from major labels (like Nike and Adidas) by utilizing its scale and brand relationships.

It has substantial backing from real estate assets because, in contrast to most retailers, it owns rather than leases its retail locations. Additionally, it has substantial holdings in Hugo Boss, AO World, Asos, and Mulberry, which together account for about 40% of its equity value and suggest that the company's core business trades on an extremely appealing low single-digit price/earnings (p/e) ratio.

In some of the fastest-growing markets in the world, Standard Chartered (LSE: STAN), an emerging market-focused bank, offers retail, corporate, and institutional services throughout Asia, Africa, and the Middle East. Management has steadily advanced a turnaround strategy that is producing noticeable results, streamlined operations, and decreased the inherent risk in the company over the last ten years.

By taking advantage of Asia's increasing wealth, the bank provides a chance to capitalize on robust emerging-market growth. About one-third of the group's total profits come from this division, which is arguably the fastest-growing regional wealth manager. While Standard Chartered trades like a bank on ten times earnings, wealth managers are typically seen as high-quality businesses and typically trade around fifteen times earnings. We see the opportunity where the market's perception deviates from reality.