Companies trading at discounts to their long-run valuations tend to become takeover targets. And there are plenty of companies trading at these discounts at the moment. The index might be at new highs but, by many metrics, UK stocks are still trading at discounted valuations.

One recent example of a discounted UK stock becoming a takeover target is . The stock has surged following a rejected big by a private equity consortium. However, this isn’t the company I’m looking at today.

Immediate gains? Buying a stock that’s a takeover target can be attractive due to the potential for immediate gains, but I wouldn’t buy a company purely in the hope a takeover will help me out. Additionally, the underlying strengths that make the company a target suggest solid fundamentals, offering the potential for long-term gains. Market sentiment and increased liquidity can further enhance the attractiveness of investing in such a stock.

Valuation makes it vulnerable Analysts believe that luxury fashion house ( ) could one day be subject to a bid as the share price drops to new lows. investment manager Sasha Kachanova recently noted that Burberry was a target due to its valuation. “ ,” Kachanova said.

A 2023 Bloomberg survey also highlighted Burberry as one of the most likely options for a takeover in the fashion and luxury goods sector. It keeps getting cheaper Burberry stock is now 53.4% over the past 12 months.

It’s among the worst performers on the index and could be relegated t.