Liberum singles out three 'cheap' UK stocks to buy

"It is well known that European stock market valuations are lower on average than in the US," said analysts Joachim Klement and Susana Cruz in a research report on Tuesday.

"Adjusted for differences in sector composition, the European stock market currently trades at a 23.5% discount to the US, while the UK market even trades at a 27.7% discount. Both are very large discounts compared to what we have seen even in the post-GFC [global financial crisis] era of US megacap dominance."

The analysts took a deep dive into 110 different subsectors to find out which European stocks trade at the biggest discount – on a price-to-earnings ratio basis – to their US peers.

While ConvaTec, Drax and Hays don't trade at the biggest discounts to US peers in their coverage, Liberum highlighted these three stocks with a 'buy' rating.

• For ConvaTec, the medical products group focused on therapies for the management of chronic conditions, the stock trades at 19.8x forward earnings, a 23% discount to the average multiple of 25.7x for medical supplies peers on the S&P 500. Liberum gives the shares a target price of 276p, compared with Friday's closing price of 230.2p.
• Power station business Drax trades at just 4.3x earnings, a 71% discount to S&P 500 electricity peers (14.8x). The price target for Drax is set at 940p (Friday's close: 559.6p).
• Recruitment firm Hays trades at 11.2x earnings, a 38% discount to the business training and employment agency sector on the S&P 500 (18.1x). The price target for Hays is set at 125p (Friday's close: 105.3p).

Looking at Liberum's wider coverage, the UK stocks with the biggest discounts to their industry peers on the S&P 500 are: JD Sports (-57%), Beazley (-58.9%), TUI (-59.9%), IG Group (-62.5%), Tritax Big Box REIT (-72.5%) and Energean (-72.6%).