Investors are choosing UK stocks over the US. Which companies to look out for?

Britain's FTSE 100 stock index is outperforming the U.S. S&P 500 by 2 percentage points in terms of growth in 2025. Stocks in London are supported by investors' desire to diversify their portfolios. Some analysts believe the market is still undervalued and see the market as having the potential to rise another 7-10% over the next 12 months. Which companies do they advise paying attention to?

Britain's FTSE 100 stock index added 6.7% in three months, posting its best quarter since the end of 2022 and its second best quarter in five years, CNBC reported.

At trading on Friday, October 3, the index renewed its historical maximum, and since the beginning of the year it has added about 16%. By comparison, the main U.S. stock index S&P 500 for the same period rose by 14%. In addition, many of the largest British companies in the third quarter showed better results among the companies included in the European index Stoxx 600. For example, mining companies Fresnillo and Antofagasta added 64% and 52% respectively, while oil transportation giant Frontline rose 39%, CNBC noted. The rally in European stocks is due to investors' desire to diversify their portfolios outside the U.S. amid volatility due to Donald Trump's trade policy, the channel said.

The upside potential of the FTSE 100 is not yet over, according to Morningstar Wealth portfolio manager Mark Preskett. "The rebound in the British market in the third quarter was impressive, catching many investors off guard," he told CNBC. - "We continue to believe British equities are generally undervalued and the pound [sterling] is trading below fair value.

The U.K. market has upside potential of about 7% more, added Morningstar chief equity strategist Michael Field. "The U.K. has one of the most stable governments in the Western world, a favorable trade agreement with the U.S. and the potential for significant rate cuts over the next 12 months," Field noted in a CNBC statement.

Tony Meadows of BRI Wealth Management believes that British securities look more attractive than European ones, where the strong euro is weighing on exporters' profit forecasts. According to him, about 80% of FTSE 100 companies' revenue comes from overseas markets. By 2026, analysts expect earnings per share growth of large British companies by 10%.

The UK market looks more attractive now than it has in decades, noted Ben Needham, UK portfolio manager at Ninety One. "These are very interesting waters to fish," he emphasized.

However, some are urging investors to be cautious. "European equities are a market to rent but not to own," said Nick George, chief equity strategist at Canada's Alpine Macro. He said long-term and structural issues make the region less promising compared to more dynamic markets like the U.S. or even India and China. George added that conditions for buying European or British equities - like a weak U.S. dollar, a cyclical upturn in the macroeconomy or stimulus from fiscal and monetary policy - were favorable in February and March. "However, in my view, these tailwinds have now weakened considerably, and many European investors who moved away from U.S. equities in the spring will eventually move back in," the strategist concluded.

Ben Needham of Ninety One highlights alcohol producer Diageo, which owns the Guinness and Johnnie Walker brands, among London securities. He says the company's valuation is now at a record low since the 2008 crisis. Despite the pressures - falling sales, management reshuffles and U.S. trade risks - Diageo shares are up more than 22% since the start of the year as investors bet on its recovery strategy. "The company has a Plan B in place: it is willing to cut costs and inventory, and individual brands such as Guinness are performing well," Needham said in a CNBC story.

Barclays analysts have also named the best ideas among UK mid- and small-cap companies. Their list includes: Trading platform IG Group, whose shares have risen 16% over the year, but the investment bank's analysts' target implies growth of about 27% more; home goods retailer Dunelm, from which analysts expect market capitalization growth of another 25% on the back of increased market share offline and online; Rosebank Industries, created to acquire other businesses on a "buy, improve, sell" basis, whose shares could rise another 27%; and Scottish mining equipment leader Weir Group, whose shares have added nearly 25% year-to-date, but Barclays expects another 11%.

This article was AI-translated and verified by a human editor