‘Cheap’ UK shares are those that I believe are currently undervalued. The market often mis-prices certain stocks, due to fear or the greed of investors. If I buy when the stock is cheap, it should return to a fair value in the long run. This investing strategy can help me to achieve my financial goals, such as becoming an ISA millionaire. So here are the companies that are on my radar right now.
Long-term goals with my ISA
The concept of becoming an ISA millionaire fits in well with buying cheap UK shares. After all, it’s going to take me several years of investing up to my £20,000 a year before I can hope to reach seven figures. By investing in undervalued stocks that I believe in for years to come, this should provide ample time in my ISA for high returns if the share price rallies from current levels.
Given that I’ll be in this for several years, I want to invest in stocks that have an established track record. For example, I’d consider buying shares in the Scottish Mortgage Investment Trust (LSE:SMT). The share price has fallen 21.5% over the past year. It also currently trades at a discount of 1.7% to the net asset value.
To understand this better, it’s important to grasp what SMT does. It’s a professional manager and invests in a range of stocks. So in theory, the share price should reflect the overall value of all of the stock it holds. This is known as the net asset value.
I think this is a cheap UK share due to the sum of all its parts. Within the portfolio are names such as Amazon and Moderna. Both stocks have moved lower since the start of the year, representing buying opportunities in my opinion. Therefore, buying SMT shares helps me to get exposure to a range of attractive stocks.
However, I do need to keep an eye on the share price relative to the net asset value. A risk is that the share price could be a lot lower than the net asset value when I want to sell, meaning it doesn’t accurately reflect the value of the portfolio.
A cheap UK share with momentum
Another cheap UK share I like for my ISA is Kingfisher (LSE:KGF). The share price has fallen 24% over the past year, recently hitting 52-week lows at 247p.
The slump has made the price-to-earnings ratio look attractive. At 9.2, it’s below the FTSE 100 average, potentially a sign that it’s undervalued in the short term.
I like the business due to its resilience in earnings over the years. This is in a large part due to the fact that it operates DIY stores. Products such as hammers and hard hats aren’t going to be out of fashion, regardless of the state of the UK economy. In fact, DIY could become more popular among cash-strapped consumers.
2021 sales grew by 6.8% versus 2020, with post-tax profit up 42.3%. I’m cautious about the impact of supply chain problems for 2022 though. Add into the mix the impact of rising inflation and I think Kingfisher management will have its work cut out to navigate all of this.
I’m nonetheless considering buying both these cheap UK shares now for my ISA.
