Large and mid-cap UK names, from Tesco PLC (LSE:TSCO) and GSK PLC (LSE:GSK, NYSE:GSK) to Galliford Try Holdings PLC (LSE:GFRD) and Cordiant Digital Infrastructure Ltd (LSE:CORD), were named by UBS, which sees UK equities continuing to make ground in 2026.
Strategists at the Swiss bank continued to favour London shares based on a favourable mix of cheap valuations, earnings resilience and easing financial conditions – even if the UK macroeconomic background remains cool.
Equity strategists described the environment to clients as a “cool breeze, calm seas” regime: economic activity has softened from earlier strength, but price action remains firm and volatility low.
This backdrop, UBS says, supports selective exposure to undervalued quality companies rather than broad index beta – in other words, investors should focus on well-run, underpriced companies rather than chasing the market as a whole.
Consensus earnings expectations for 2026 have edged lower, but 2027 forecasts remain intact.
Mining, banks and pharmaceuticals continue to be the core drivers of EPS, while energy lags.
UK equities continue to trade at a persistent discount to Europe, including in high-quality names.
Small and mid-caps, in particular, remain “cheap on book” and lightly owned, according to positioning data. UBS suggested this provides scope for mean reversion.
The bank favours stocks with strong balance sheets, stable margins and low valuation multiples – especially in sectors like food and staples retail.
Tesco, J Sainsbury PLC (LSE:SBRY) and M&S are cited as examples offering cash flow strength and potential for re-rating as the Bank of England cuts rates.
UBS also proposed a strategy it called “QARP: cheap but cheerful” that favours UK mid-caps with strong operational quality, solid cash generation, and undemanding valuations.
These "Quality at a Reasonable Price" stocks offer exposure to domestic easing "without needing a macro miracle".
Top names from the stock screen include drugmaker GSK, Georgian lender TBC Bank (LSE:TBCG), student housing developer Unite Group PLC (LSE:UTG), water and climate solutions maker Genuit Group PLC (LSE:GEN), construction group Galliford Try, data centre and telecoms investor Cordiant Digital Infrastructure Ltd (LSE:CORD), digital consultant Kainos Group PLC (LSE:KNOS) and retailers JD Sports Fashion PLC (LSE:JD., OTC:JDSPY) and B&M European Value Retail SA (LSE:BME), among others.
"In a market that's cautious and unwilling to overpay, we prefer companies with a solid balance sheet, stable margins, decent earnings visibility, and trading at undemanding valuations," the strategists said.
The screen tilts toward cash-generative FTSE 350 names, "many of which are domestically oriented and benefit from easing financial conditions, giving exposure to both quality fundamentals and valuation re-rating potential".