Here are my top 6 cheap UK shares I’d consider buying in a diversified portfolio today.
Cheap UK shares to buy
Investors looking for undervalued stocks might be interested in news publisher Reach. Investor sentiment towards this company has plunged in 2020. However, its fundamentals remain attractive.
The group is set to report a net profit of £91m this year, according to analysts. That puts the stock on a forward price-to-earnings (P/E) multiple of just 2.5. This suggests Reach may be one of the best cheap UK shares on the market today. A dividend of 6.8p per share is also forecast for 2021, giving the stock a prospective dividend yield of 9%.
Another company that’s come under fire recently is Stagecoach. The public transport operator has seen revenues collapse in 2020 as consumers have tried to avoid crowded spaces.
Nevertheless, in the long run, the outlook for public transport remains bright. As one of the largest operators in the country, Stagecoach should benefit. As such, if the group can get through the current crisis, and there’s no reason to suggest why it can’t, the stock could produce significant total returns from current levels. It’s currently dealing at a 2022 P/E of just 4.7.
In my opinion, the best cheap UK shares to buy are those companies suffering from temporary factors. This includes financial services group Just. Investor sentiment towards this business has deteriorated due to concerns about its balance sheet and regulatory headwinds. It looks to me as if these issues are already reflected in the stock price however.
It’s currently changing hands at a P/E of 2.8 and price-to-book (P/B) of 0.2. These numbers suggest that when the regulatory uncertainty lifts, the stock could produce large total returns for investors.
Temporary setbacks
Investec has been one of my favourite cheap UK shares for some time. The company is one of the world’s largest asset managers, but investors seem to be ignoring its strengths. The stock is currently changing hands at a forward P/E of 5 and offers a dividend yield of 8.6%. Group profits are expected to fall slightly this year before recovering strongly in its 2022 financial year.
2020 has been a rough year for all hospitality businesses, including pubs giant Marston’s. The group acted quickly to shore up its balance sheet and cut costs earlier this year. These actions have helped secure its future. And even though demand for eating and drinking out has declined since the coronavirus crisis began, in the long run, consumers should return. That suggests now could be an excellent time to buy this stock while it’s changing hands at a P/B value of just 0.4.
Finally, I think investors should consider adding N Brown to a basket of cheap UK shares. This online clothing retailer has seen sales decline in 2020. But the current share price more than makes up for this setback. Right now, the stock’s trading at a forward P/E of just 5.4. That’s even after including this year’s forecasted decline in earnings.
