For investors who believe the AI trade has become too crowded, there is another way to participate in the next phase of the market: look where valuations, cash generation and dividends matter more than excitement. Value investing is not necessarily a bet against AI, but a useful counterweight to an increasingly expensive and volatile AI portfolio.
That does not mean abandoning growth. Instead, the opportunity is to own established companies with durable competitive advantages, recurring cash flows and valuations that provide a greater margin of safety.
That argument has become more compelling as the dispersion between bullish and bearish views on AI stocks has widened. Nvidia (NASDAQ:NVDA), for example, currently has an unusually large spread between Wall Street price targets, while Morningstar has warned that some AI-linked stocks have moved substantially above fair value.
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For UK investors, the FTSE 100 also offers an important valuation counterweight. UK equities continue to trade at substantially lower valuations than the US market, while dividend yields are generally higher. The UK has also become an increasingly attractive hunting ground for international buyers and activist investors looking for undervalued assets.
The following 10 stocks are therefore worth considering as a value-and-quality watchlist, rather than as a collection of guaranteed ‘safe’ investments.
At a glance: 10 potential value/quality alternatives
| Stock | Market | Value case | Income yield* | Growth outlook | Risk rating** |
| Berkshire Hathaway | US | Conglomerate discount/cash pile | 0% | Medium | ★★ Low |
| Cisco | US | Mature tech + recurring revenue | ~1.5% | Medium | ★★ Low |
| Medtronic | US | Healthcare value + ageing population | ~3% | Medium | ★★ Low |
| Mondelez | US | Defensive brands + valuation discount | ~3.4% | Medium | ★★ Low |
| PepsiCo | US | Wide moat + turnaround potential | ~4.2% | Low/medium | ★★ Low |
| Unilever | UK | Global consumer brands | ~3.7% | Medium | ★★ Low |
| Shell | UK | Cash generation + shareholder returns | ~3.6% | Medium | ★★★ Moderate |
| Aviva | UK | Insurance + capital returns | ~6% | Medium/high | ★★★ Moderate |
| Tesco | UK | Market leadership + cash generation | ~3.6% | Medium | ★★ Low |
| National Grid | UK/US | Regulated infrastructure | ~4.2% | Medium | ★★ Low |
*Indicative forward yields based on Stockopedia data. **Risk ratings are Sharesify’s assessment, not analyst ratings.
Why value now?
The key attraction of value investing is margin of safety.
When investors pay 40, 50 or 60-times earnings for a company, a large amount of future growth has already been incorporated into the share price. If growth disappoints, or as recently has happened, bonds yields rise, the valuation can contract sharply even when the underlying business continues to perform well.
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Growth stock valuations fall when bond yields rise because the net present value of their distant future earnings decreases when discounted at a higher rate.
By contrast, a company trading on lower earnings, paying a dividend and generating substantial free cash flow has several potential sources of shareholder return:
- earnings growth;
- dividend income;
- share buybacks;
- valuation re-rating.
That combination is particularly useful if AI enthusiasm eventually cools.
It is also important not to confuse cheap with low risk. A struggling company can remain cheap for years. The better opportunities are companies where a relatively modest valuation is combined with strong balance sheets, competitive advantages and visible cash generation.
10 value stock ideas
1. Berkshire Hathaway (NYSE:BRK) — the ultimate defensive value play
Berkshire is unusual because it does not pay a dividend, but it arguably offers one of the strongest combinations of financial strength and diversification on the list.
Its insurance operations, BNSF railway, energy businesses and industrial assets provide exposure to a broad range of the economy. The enormous cash balance provides additional protection and the ability to deploy capital when opportunities arise.
Morningstar described Berkshire as ‘moderately undervalued’, giving it four stars and a low uncertainty rating. Its fair-value estimate was $510 per Class B share.
The interesting development in 2026 is Berkshire’s willingness to deploy more capital. It became a net buyer of equities in Q2 and significantly increased its Alphabet investment, demonstrating that management is prepared to invest its enormous balance sheet when attractive opportunities appear.
Bull case: Cash earns attractive returns while Berkshire continues making acquisitions and repurchasing shares.
Bear case: The company is enormous, making high-growth acquisitions increasingly difficult, while the transition away from Warren Buffett creates execution risk.
Risk: ★★ Low
2. Cisco Systems (NASDAQ:CSCO) — value technology without betting on AI hype
Cisco may be one of the most interesting compromises for investors who still want technology exposure without paying AI-infrastructure valuations.
Its core networking business is mature, but that maturity brings predictable cash generation. Meanwhile, security, software and data-centre networking provide additional growth.
Morningstar recently raised its valuation to $115, saying: ‘We’re on board with the AI growth trajectory.’ It describes Cisco as the dominant force in enterprise networking, with strong positions across switching, routing, wireless and security.
The attraction is that Cisco can benefit from AI infrastructure spending without needing to be the company selling the most expensive AI accelerator.
Bull case: AI data-centre investment boosts networking demand while recurring software revenue improves margins.
Bear case: Enterprise IT budgets weaken and customers increasingly use alternative networking architectures.
Risk: ★★ Low
3. Medtronic (NYSE:MDT) — healthcare value with demographic support
Medtronic provides a completely different source of growth: ageing populations and rising demand for medical devices.
Morningstar’s David Sekera recently identified Medtronic as one of his three undervalued stocks, estimating it was 22% below fair value and expecting steady revenue and earnings growth over the next five years.
That combination is attractive because the investment thesis is not dependent on consumers spending more on discretionary goods or companies expanding AI budgets.
Medtronic also provides a dividend and exposure to long-term healthcare demand.
Bull case: New products, demographic trends and margin improvement generate steady earnings growth.
Bear case: Product recalls, regulatory pressures or slow adoption of new devices hold back growth.
Risk: ★★ Low
4. Mondelez (NASDAQ:MDLZ) — defensive brands at a discount
Mondelez owns brands including Oreo, Cadbury and Ritz, giving investors exposure to global snacking demand.
Morningstar currently sees the shares as particularly attractive: Sekera identified Mondelez as 20% below fair value, with a wide economic moat, low uncertainty and a dividend yield around 3.2%.
That is precisely the type of stock value investors tend to favour: strong brands, pricing power and recurring consumer demand, but without a valuation dependent on spectacular growth.
Bull case: Pricing, volume recovery and emerging-market growth drive earnings while the valuation normalises.
Bear case: Commodity inflation, weak consumer spending or currency movements pressure margins.
Risk: ★★ Low
5. PepsiCo (NASDAQ:PEP) — income plus turnaround potential
PepsiCo is another defensive consumer giant whose valuation has been held back by concerns about weak North American growth and margins.
Morningstar nevertheless describes its competitive position as a wide moat, supported by powerful beverage and snack brands, distribution scale and retailer relationships. Its July analysis said the shares were undervalued.
The longer-term attraction is that investors do not need PepsiCo to become a high-growth company. A modest improvement in sales and margins, combined with dividends, can produce attractive total returns from a depressed starting valuation.
Bull case: Brand investment, innovation and margin recovery revive earnings growth.
Bear case: Consumer resistance to higher prices and weak North American demand persist.
Risk: ★★ Low
6. Unilever (LON:ULVR) — global brands at a more reasonable valuation
Unilever is a classic UK value-and-quality candidate.
Its brands span personal care, beauty, home care and food, creating a diversified stream of recurring consumer demand.
The analyst picture is mixed, which is itself important. Berenberg had a 5,050p target in August, while Bernstein was more bullish at 5,800p and Barclays at 6,000p. Bank of America also raised its target to 5,700p. However, UBS and Jefferies remain cautious.
That means Unilever should not be presented as an obvious bargain. Instead, it is a quality-at-a-reasonable-price proposition.
Bull case: Portfolio simplification, premium brands and margin improvement drive earnings growth.
Bear case: Weak volumes, emerging-market currencies and valuation disappointment limit returns.
Risk: ★★ Low
7. Shell (LON:SHEL) — value plus shareholder returns
Shell provides one of the strongest income components in the shortlist, but also one of the higher levels of cyclical risk.
The investment case is based on scale, LNG exposure, disciplined capital allocation and substantial cash generation.
Analyst sentiment remains broadly supportive. Berenberg reiterated Buy with a 4,000p target in August, while Jefferies maintained Buy with a 4,500p target. JPMorgan remained Overweight with a 3,600p target.
Berenberg’s Henry Tarr described Shell as ‘attractively valued’ after stronger-than-expected Q2 figures.
Bull case: Strong LNG demand, disciplined investment and buybacks support earnings and shareholder returns.
Bear case: Oil and gas prices fall sharply, energy-transition costs increase or geopolitical risks disrupt operations.
Risk: ★★★ Moderate
8. Aviva (LON:AV) — an increasingly interesting UK compounder
Aviva has already performed strongly, so it is less of a deep-value idea than some names on this list.
But its combination of insurance, wealth management, cash generation and shareholder distributions makes it interesting.
The investment case strengthened following its latest results. First-half operating profit increased 24% to £1.33bn, beating the £1.26bn analyst consensus, while management maintained its ambition for approximately 11% compound EPS growth through 2028.
JPMorgan upgraded Aviva to Overweight and raised its target to 800p, arguing that the shares had ‘lagged and de-rated’ versus peers, creating ‘attractive relative upside potential.’
Bull case: Direct Line integration, wealth-management growth and capital returns generate double-digit earnings growth.
Bear case: Insurance pricing weakens, integration disappoints or the shares simply become too expensive.
Risk: ★★★ Moderate
9. Tesco (LON:TSCO) — boring may be beautiful
Tesco illustrates why value investing does not have to mean buying unpopular businesses.
The UK’s largest supermarket benefits from scale, a leading market position and increasingly sophisticated loyalty data through Clubcard.
Analyst sentiment is unusually positive. Current consensus is Buy, with 12 Buy ratings, three Holds and no Sells among 15 analysts. The average target is around 517p versus a share price around 480p in the latest available data. Bank of America upgraded Tesco to Buy with a 540p target in July.
The investment thesis is therefore more about dependable compounding than spectacular upside.
Bull case: Market-share gains, productivity improvements and Clubcard monetisation support steady EPS growth.
Bear case: Grocery price competition intensifies and margins remain under pressure.
Risk: ★★ Low
10. National Grid (LON:NG) — infrastructure rather than speculation
National Grid may be one of the clearest ways for investors to step away from speculative technology.
The company operates essential electricity transmission infrastructure in Britain and has significant US operations. Its assets benefit from long-term demand growth and the enormous investment required to modernise electricity networks.
That makes it particularly relevant to the AI story: data centres require enormous amounts of electricity, but the infrastructure connecting that electricity to customers also needs investment.
The latest analyst consensus remains broadly constructive: Investing.com’s poll showed seven Buy, six Hold and two Sell ratings, with an average target of about 1,355p versus a share price around 1,194p.
Bull case: Grid investment accelerates as electricity demand rises from data centres, electrification and renewables.
Bear case: Heavy capital expenditure increases financing requirements and higher interest rates pressure valuation.
Risk: ★★ Low
Value bull case vs bear case
| Bull case for value | Bear case for value | |
| Valuation | Lower multiples provide margin of safety | Cheap stocks can remain cheap |
| Income | Dividends provide return while waiting | High yields can signal structural problems |
| AI bubble | Rotation from expensive AI into cheaper sectors | AI boom continues and value remains neglected |
| Interest rates | Rate cuts can support valuation multiples | Persistent inflation hurts long-duration assets |
| UK market | FTSE valuations remain attractive | UK structural growth remains weak |
| Corporate activity | Buybacks, M&A and activist pressure can unlock value | Management may waste cash or make poor acquisitions |
| Portfolio role | Diversifies high-growth technology exposure | Can lag sharply during another growth-stock rally |
What could go wrong?
The biggest mistake would be to interpret this list as ‘10 safe stocks.’
Equities are never risk-free.
Shell remains exposed to commodity prices. National Grid carries significant capital expenditure and financing requirements. Insurers face claims and regulatory risk. Consumer companies can suffer from inflation and changing consumer behaviour. Cisco remains exposed to technology disruption.
And value investing has an opportunity cost: if AI continues to drive exceptionally strong earnings growth, expensive technology stocks could continue outperforming cheaper companies.
There is also a danger that some apparent value traps are cheap for good reasons.
The best defence is therefore to focus on quality value rather than simply the lowest PE ratio.
Investor verdict
For investors worried that the AI trade has become too crowded, the answer does not have to be selling every technology holding and hiding in cash.
A more balanced approach could be to pair higher-growth AI exposure with companies where cash flow, dividends, competitive advantages and reasonable valuations provide a greater margin of safety.
Sharesify’s 5 strongest candidates from this list are:
1. Berkshire Hathaway — best overall defensive compounder
2. Cisco — best technology/value compromise
3. Medtronic — best healthcare value play
4. Mondelez — best consumer value opportunity
5. Shell — best income/value combination
For UK investors seeking more domestic exposure, Tesco, National Grid and Aviva provide three very different ways to diversify away from US mega-cap technology.
The key point is that value investing is not necessarily a bet against AI. In fact, some of the best value opportunities can still benefit indirectly from the AI boom — National Grid through electricity demand and Cisco through data-centre networking, for example.
Instead, the strategy is about refusing to pay any price for growth.
After a period in which investors have rewarded AI companies with extraordinary valuations, the next opportunity may come from companies where expectations are lower, cash generation is tangible and shareholders are paid to wait.
For UK retail investors, that combination could make quality value stocks a useful counterweight to an increasingly expensive and volatile AI portfolio.
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