I am always looking for cheap UK shares to add to my portfolio. And right now, there are plenty of options on the market.
Even though the UK economy has bounced back from the pandemic, this is not yet reflected in many company valuations. This is something I want to take advantage of over the next year.
As such, here are five cheap UK shares I would buy for my portfolio right now.
UK shares to buy
Although they are traded on the London market, the first couple of companies are not technically UK businesses.
Bank of Georgia and Ferrexpo have their primary operations in Georgia and Ukraine. Usually, I would stay away from emerging market companies. These businesses can face additional risks, such as corporate governance challenges and political uncertainty.
However, the pair have proven themselves over the past five years. Their low valuations also discount some of the risks, in my opinion.
Bank of Georgia has been able to capitalise on the expanding Georgian economy. It is a far more profitable bank than its UK peers and has a strong balance sheet.
Meanwhile, Ferrexpo is a high-quality iron ore miner which supplies businesses worldwide. It is well managed, with large profit margins, a strong balance sheet, and a history of returning excess profits to investors.
Bank of Georgia and Ferrexpo trade at forward price-to-earnings (P/E) ratios of 4.7 and 5.1 respectively.
Cheap growth stocks
Back in the UK, I would acquire Morgan Sindall and Royal Mail for my basket of cheap UK shares. Both of these companies currently look undervalued, and they also have plenty of scope for growth over the next few years. Shares in Royal Mail trade at a forward P/E of 8.4, while Morgan Sindall is selling at a P/E of 11.
As the construction industry returns to growth, I think Morgan Sindall can capitalise on the industry’s expansion.
At the same time, the booming e-commerce industry has helped Royal Mail surpass expectations over the past couple of years. It has used this windfall to invest in operations and improve efficiency. These efficiency gains may help the company outperform in the years ahead.
Challenges the two corporations could encounter as we advance include inflationary pressures, such as rising costs and competition from sector peers.
Explosive potential
The final stock I would acquire for my portfolio of cheap UK shares is the car dealer Vertu Motors. As the demand for second-hand vehicles has exploded over the past year, this company’s profits have followed suit.
Analysts expect the trend to last for at least the next two years, but the market seems to be ignoring this potential. The stock is currently trading at a P/E of 4.6. I think that is far too cheap. With growth expected to continue, I think it is only a matter of time before the stock sees a re-rating.
Of course, this growth is far from guaranteed. The most considerable risk is a slowdown in the used-car market, which could happen at any point in the next few years.
