Introduction
Glossary Of Key Concepts
This glossary defines the analytical lens used throughout this post.
Without it, cheap stocks, dividends, and value become muddled.
G1. Business Cycle
The recurring expansion and contraction of activity driven mainly by credit conditions and policy.
G2. Economic Machine
A model where growth, productivity, credit, wages, inflation, and confidence interact mechanically.
G3. Pricing Power
The ability to raise prices without materially reducing demand.
G4. Value Trap
A stock that appears cheap but lacks a credible path to improving real profitability.
G5. Real Return
Return after inflation, representing true purchasing power.
G6. Commoditised Pricing
A market where products are interchangeable and competition pushes margins down.
G7. Inflation Pass-Through
The ability to transfer rising costs to customers through higher prices.
G8. Capital Intensity
The level of ongoing investment required simply to maintain operations.
G9. Catalyst
A change that can alter earnings expectations or valuation.
G10. Sector Classification Used In This Analysis
Companies are grouped by economic function rather than index labels.
Global Brands
Real Assets
Toll-Booth Infrastructure
Financial Intermediaries
Regulated Utilities
Domestic Discretionary
Asset-Light Services
- The Economic Machine
General Principles
Most modern macro frameworks describe the economy as a machine rather than a story.
Long-term living standards are determined by productivity.
Short-term cycles are driven by credit.
When credit expands faster than productivity, growth accelerates.
Wages rise.
Inflation follows.
Policy tightens.
Credit slows.
Margins compress.
The cycle turns.
In early cycle phases, leverage and growth tend to outperform.
In late cycle phases, scarcity, pricing power, and balance-sheet strength dominate.
DALIO'S FOUR QUADRANTS
Dalio's four broad macro quadrants are:
Rising growth, low inflation
Rising growth, rising inflation
Falling growth, rising inflation (stagflation)
Falling growth, falling inflation (disinflation / recession)
What matters in each quadrant is:
• Pricing power
• Balance-sheet strength
• Cost structure
• Demand elasticity
- The United Kingdom In 2026
Position In The Cycle
By 2026, the United Kingdom sits in a late-cycle, low-productivity position.
Productivity growth has been weak for more than a decade.
Real wages have only recently stabilised.
Inflation has eased from peak levels but remains structurally higher than the pre-2020 norm.
Interest rates remain restrictive.
Credit growth is subdued.
Fiscal policy is constrained by public debt.
This is not a clean recovery.
It resembles mild stagflationary conditions.
Nominal revenues may rise.
Real margins are hard to defend.
This context favours pricing power, global revenues, and low capital intensity.
It penalises domestic price-takers and regulated returns.
- Cheap UK Stocks For 2026
Evaluation Using Sector
Stocks are evaluated by economic sector rather than index labels.
3.1 Global Brands
Diageo
Sector. Global branded consumer goods.
Pricing power. High.
Inflation pass-through. Strong.
Domestic exposure. Low.
Interpretation.
A dividend payer with genuine protection of real returns.
3.2 Real Assets
Rio Tinto
BP
Rio Tinto.
Sector. Mining and real assets.
Inflation linkage. High.
Dividend stability. Variable.
Key risk. China and commodity cycle.
BP.
Sector. Energy.
Inflation linkage. High.
Key constraint. Politics and regulation.
Best viewed as tactical rather than compounding.
3.3 Financial Intermediaries
CMC Markets
Sector. Market-linked financial services.
Key driver. Volatility rather than growth.
Cycle behaviour. Highly cyclical.
Interpretation.
Can perform in uncertain regimes, but not an inflation hedge by itself.
3.4 Asset-Light Services
GB Group
Sector. Identity and compliance services.
Demand driver. Regulation and digitisation.
Domestic exposure. Moderate.
Key risk. Execution.
Interpretation.
More aligned than most UK mid-caps, but not low risk.
3.5 Domestic Discretionary And Commoditised Services
Vodafone
Halfords
Moonpig
Vodafone.
Sector. Telecoms.
Pricing power. Weak.
Capital intensity. High.
Risk. Value trap.
Halfords.
Sector. Domestic retail and services.
Pricing power. Limited.
Cost pressure. Labour and inputs.
Risk. Execution and consumer squeeze.
Moonpig.
Sector. Discretionary consumer.
Pricing power. Limited.
Risk. Demand elasticity.
3.6 Summary Of The List
Most names are income stabilisers, not inflation-resilient compounders.
The stronger candidates survive due to pricing power or real assets, not valuation.
- Investment Rules
For This Phase Of The Cycle
Rule 1. Inflation Is The Hurdle Rate.
If dividends do not outgrow inflation, real wealth erodes.
Rule 2. Pricing Power Beats Low Valuation.
Cheap price-takers stay cheap.
Rule 3. Global Revenues Beat UK Domestic Exposure.
International earnings reduce UK stagflation risk.
Rule 4. Dividends Must Grow In Real Terms.
High yield without growth is a warning sign.
Rule 5. Avoid Capital-Intensive Price-Takers.
Inflation turns maintenance capex into a hidden tax.
Rule 6. Demand A Catalyst.
Without one, rerating is unlikely.
Rule 7. Accept Narrowness.
Few stocks truly fit this regime.
- FTSE All-Share
Sector Shortlist Logic
Most attractive sectors.
Global Brands.
Market infrastructure and data.
Selective commodities and real assets.
Asset-light professional services.
Least attractive sectors.
Domestic retail.
Telecoms.
Regulated utilities.
UK-focused banks.
Housebuilders.
Sequence.
Exclude weak sectors first.
Select stocks second.
- Timing The Market
Using Technical Indicators
What and When
Fundamentals answer what to own.
Technical tools help decide when.
Tools.
200-day moving average for trend discipline.
Relative strength versus the FTSE All-Share to identify leadership.
RSI extremes to reduce entry regret.
Breakout and retest patterns for higher-probability entries.
Principle.
Timing is not prediction.
It is probability management.
Final Thought
The UK does not lack cheap stocks.
It lacks enough businesses aligned with the current economic machine.
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