Take advantage of the UK stock market's cheap companies and profit from the best British deals

Michael Field, Morningstar's Chief Equity Market Strategist for EMEA, chooses three alluring UK stocks to invest in

As 2025 progresses, the UK equity markets are in a respectable position. According to our bottom-up analysis, the FTSE could rise by about 6% from its current level, making the UK market more appealing than the rest of Europe and the US.

Granted, the macroeconomic climate is still unpredictable; the Bank of England recently cut its growth projections for 2025 in half.

In addition to this, inflation is increasing once more, and US trade tariffs could potentially cause disruptions. Nevertheless, the UK continues to offer a wealth of alluring stock opportunities.

Solid groundwork.

We think that the second-largest homebuilder in Britain, Persimmon (LSE: PSN), is a fantastic opportunity to take advantage of the structural mismatch between supply and demand in the UK housing market.

Since it peaked four years ago, the stock has lost two-thirds of its value. Its decline was exacerbated by rising interest rates and consumers' stretched budgets, but we believe that the company has already turned the corner and that favorable conditions are now in place.

The UK's declining interest rates and rising affordability of home ownership are driving up demand from buyers. Policies that are very supportive of homebuilders have been introduced by the new Labour government, which should encourage more construction in the medium run.

Demographics, such as longer life expectancy, are supportive in the long run. Investors can take advantage of a dividend yield exceeding five percent in the interim.

BP is a wise investment.

The massive oil company BP (LSE: BP) is at last changing course and investing more in conventional oil and gas projects. Additionally, the rate at which it intends to switch to clean energy is diminishing.

Although that is bad news for environmentalists, the action should, in the medium run, increase value for shareholders.

Future profitability should increase as a result of the company's reduction of structural costs and shift to higher-margin projects.

The stock's fair value, according to our estimation, is 20% higher than its current price, and investors can profit from a dividend yield of almost 6% while they wait for the share price to rise. When you combine this with the possibility that BP will be acquired, as is currently being speculated in the media, BP is a wise choice for investors.

Ready to get better.

In recent years, the luxury market has suffered, and Burberry Group (LSE: BRBY) has not been exempt. We still see a lot of value in brands like Burberry, but the pandemic-induced desire for luxury goods shopping has subsided, and demand from Chinese consumers in particular has subsided.

Since the luxury goods market is cyclical, we view the current slump as a phase of a downturn rather than a permanent collapse. We believe that reducing capital expenditures will help Burberry, a major manufacturer of luxury goods, to a great extent and should enhance cash flows.

Over time, we think the group will profit from a resurgence in the market for luxury products. The stock may increase by up to one-third.