The 2020 stock market crash means that there are a number of cheap UK shares available to buy today. Even though the FTSE 100 and FTSE 250 have rallied in recent months, the valuations of a number of companies are still at low levels due to their uncertain operating environments.
Clearly, they could experience further challenges in the short run. However, they may provide long-term investment opportunities that lead to market-beating performances as a stock market recovery takes hold in the coming years. Here are four that I own and would buy again today.
Cheap UK shares with sound strategies
BP and British American Tobacco could offer good value for money relative to cheap UK shares, I feel. The two companies have been unpopular among UK investors this year due in part to their tough operating environments. As a result, their share prices have fallen by 40% and 20% respectively year-to-date.
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However, their strategies suggest that they could deliver sound recoveries over the long run. BP is expanding its presence in low-carbon assets. This may position it for growth as the world economy banks on a green recovery from coronavirus. The business may also be a major beneficiary from a forecast improvement in economic growth that could lift the oil price in the coming years.
Meanwhile, British American Tobacco’s 7%+ dividend yield suggests that it is undervalued relative to other cheap UK shares. The company’s plans to reduce debt and invest in next-generation products such as e-cigarettes could position it for long-term growth. In the meantime, its capacity to raise cigarette prices may help to offset declining volumes.
Improving outlooks for FTSE 100 and FTSE 250 shares
Other cheap UK shares such as Lloyds and easyJet could benefit from improving operating outlooks. For Lloyds, 2020 has been an extremely tough year. While low interest rates are likely to persist, and could negatively impact on its profitability, the bank’s earnings could grow as a result of an improving economic outlook. Furthermore, a potential return to dividend payouts may stimulate investor interest in the banking sector.
easyJet’s financial performance has been desperately poor this year. However, flights may resume in larger volumes in 2021, as the rollout of a vaccine seems likely. This may mean that the company’s current share price does not factor in its likely growth in profitability over the coming years. Its capacity to reduce costs and raise capital may mean it strengthens its market position relative to sector peers.
Clearly, Lloyds and easyJet have underperformed other cheap UK shares this year. Their shares are down around a third apiece in 2020. However, the potential for improving economic conditions may mean that their valuations revert to their long-term historic averages. This may allow them to be among the major beneficiaries of a likely stock market recovery after what has been an exceptionally challenging 2020.
