2 dirt-cheap shares I’ve bought to hold for 30 years!

Dr James Fox explains why he’s bought two cheap shares with the aim of holding them for three decades. But what are they?

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I’m always on the lookout for cheap shares to buy for my portfolio. But what are ‘cheap’ shares?

I’m not talking about stocks that are simply cheaper than they were a year ago, I’m talking about meaningfully undervalued companies.

But to find undervalued stocks I’ve really got to do my research. So, let’s take a close look at the two stocks I’ve recently bought and intend to hold for 30 years.

Should you invest £1,000 in Direct Line right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Direct Line made the list?

See the 6 stocks

Dividend giant in insurance

I’ve recently bought shares in Direct Line Group (LSE:DLG). The insurance firm experienced challenges in the form of claims inflation early last year and management announced a 31.8% decline in first-half pre-tax profit.

But after a recent rally, most of which I was able to benefit from, the stock remains down 19% year-on-year.

In the near term, the company says that through steps taken within its network of garages, as well as increasing prices, it has returned to writing at target margins “based on latest claims assumptions“. Moreover, with rising interest rates, Direct Line should be able to earn more by investing cash premiums.

Created with Highcharts 11.4.3Direct Line Insurance Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

However, that doesn’t explain why I intend to hold this stock for the long run.

Firstly, I don’t see demand for insurance waning over time. Insurance institutions have existed for centuries and, despite competition from fintechs, I’m expecting it to stay that way.

Valuation wise, the discounted cash flow model suggests that the stock is undervalued by 33%, despite the recent rally.

But I’m also holding it because of the dividend yield. The stock currently has a yield of 10%, but I bought when the yield was 12%.

Dividend coverage is just 1.1, but the firm’s cash generating capacity is impressive so I’m also planning to buy more.

Consumer healthcare

Haleon (LSE:HSN) was born when it demerged from GSK and it went straight into the FTSE 100.

It’s a consumer healthcare giant that serves more than 100 markets worldwide and has an established presence in multiple channels. The firm also has considerable partnerships with retailers and pharmacy chains in the US. 

So, why Haleon?

It’s frequently discussed that populations are ageing, especially in advanced economies, and this will generate increasing demand for healthcare services, drugs, treatments, vaccines and more.

To me, it seems logical therefore to invest in a company at the cutting-edge of consumer healthcare. I’m anticipating demand for its products to grow over the coming decades.

Haleon owns brands like SensodyneAdvil, and Voltaren, all of which are household brands. And this gives it pricing power and the capacity to pass on costs to consumers. In many respects it’s a defensive purchase, but I also see this brand value as being an important part of the firm’s growth.

Since buying Haleon, the share price has jumped 13%, but I’d still buy more. I’m backing this British stock for the long run.

But what does the head of The Motley Fool’s investing team think?

Should you invest £1,000 in Direct Line right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Direct Line made the list?

See the 6 stocks

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James Fox has positions in Direct Line Insurance Group and Haleon Plc. The Motley Fool UK has recommended Haleon Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Like buying £1 for 51p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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