I’m on the hunt for cheap shares. These 5 look great value to me

I love buying cheap shares with the intention of holding for the long term to give them time to recover. There are plenty out there today.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Young female business analyst looking at a graph chart while working from home

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I’m looking to top up my portfolio by investing in cheap shares that have scope to fight back over the next few years. I reckons there are plenty that fit the bill on the FTSE 100 today, so that’s where I am beginning my hunt.

It’s odd to think of the FTSE 100 as offering good value, given the index is trading at an all-time high. Yet not all of its members have rocketed.

There’s loads of stocks I’d like to buy

Mining stock Anglo American instantly grabs my attention, as its shares trade at just 5.4 times earnings. Given that 15 times is seen as good value, it looks cheap. Better still, it should yield 7.41% this year.

Should you invest £1,000 in Centrica 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 Centrica made the list?

See the 6 stocks

It should benefit from rising demand as the Chinese economy reopens, but the risk is that a global recession will hit demand. The Anglo American share price is down 10.32% in a year, but it’s up 102% over five years. I’m taking a 10-20-year view, which allows me to look beyond today’s uncertainty. Over that length of time, this stock looks a buy.

Incredibly, Barclays is even cheaper, trading at just five times earnings, with a price-to-book value of just 0.4 (where 1 is considered fair value). Rising interest rates allows banks to widen their net interest margins, which is positive, but the recession is a big negative if it leads to a sharp rise in debt impairments.

The Barclays yield is relatively low at 3.23% but it is forecast to hit 4.8% next year and still have ample cover of 3.8. I would expect more progression to come plus some share price growth when investor sentiment picks up.

B&Q and Screwfix owner Kingfisher also catch the eye trading at just 7.8 times earnings, while yielding 4.5% covered a healthy 2.8 times. It performed strongly during lockdown when housebound DIYers got to work, but has slipped since. 

The Kingfisher share price is down 13.48% over one year and 21.68% over five years, but I see this as a buying opportunity. Again, the recession and falling house prices may hit demand, but over a five-year view, this is an exciting recovery play.

I’m looking for income and growth

Housebuilder Persimmon is also cheap, trading at six times earnings, and the uncertain housing market plays a part in that too. The dividend is being rebased so the stock will yield a lot less than the 15.76% quoted online going forward. I still expect healthy shareholder payouts though.

The next year or two will be bumpy but I want to buy before the recovery, rather than afterwards.

Paper packaging products group DS Smith also looks cheap trading at just 11.1 times earnings and yielding a healthy 4.39%, covered twice by earnings. Its stock is down in 11.5% over one year and 22.76% over five, but as a contrarian investor I find this tempting rather than a turn off.

A major recession will prove a headwind as cash-strapped shoppers will spend less online, hitting deliveries and demand. The company also faces industrial action. That’s why it’s cheap, Fools! But I think DS Smith has the financial resilience to recover from today’s troubles.

I need to do my due diligence on these five stocks before buying them, but all look good value, according to my criteria.

AI Revolution Awaits: Uncover Top Stock Picks for Massive Potential Gains!

Buckle up because we're about to dive headfirst into the electrifying world of AI.

Imagine this: you make a single savvy investment in some cutting-edge technology, then kick back and watch as it revolutionises entire industries and potentially even lines your pockets.

If the mere thought of riding this AI wave excites you and the prospect of massive potential returns gets your pulse racing, then you’ve got to check out this Motley Fool Share Advisor report – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And here’s the kicker – we’re giving you an exclusive peek at ONE of these top AI stock picks, absolutely free! How’s that for a bit of brilliance?

Get your free AI stock pick

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.

Harvey Jones has positions in Persimmon Plc. The Motley Fool UK has recommended Barclays Plc and DS Smith. 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.

More on Investing Articles

Older couple walking in park
Investing Articles

Could £300 a month invested in US and UK shares reach a million by retirement?

Could an investor retire with a million pounds just by dedicating £300 a month to US and UK shares? Mark…

Read more »

Young Caucasian man making doubtful face at camera
Investing Articles

Is £800 enough to start an ISA?

Is it worth bothering with an ISA with less than £1,000 to spare? This writer believes it may be --…

Read more »

Investing Articles

3 reasons Tesla stock may be a long-term bargain

This writer is keen to buy Tesla stock at the right price. He doesn't think it's there yet -- but…

Read more »

Investing Articles

Nvidia stock is a lot cheaper than before – or is it?

Nvidia stock has been caught in the whirlwind of market volatility. This writer has been waiting to buy, so might…

Read more »

Top Stocks

3 FTSE stocks Fools are eyeing up for choppy markets

A selection of companies listed on the UK stock market on the watchlists of four Foolish investors.

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

A £10,000 investment in Rolls-Royce shares last week is now worth this…

Harvey Jones says Rolls-Royce shares couldn't escape the volatility of recent weeks, but wonders if the recent dip is a…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

Prediction: in 2 years these S&P 500 stocks will be much higher than they are today

These two S&P 500 stocks have been beaten down in recent weeks. But Edward Sheldon expects them to move much…

Read more »

Investing Articles

10% yields! Why a volatile stock market is great news for passive income investors

The recent stock market volatility has given passive income investors the chance to earn double-digit returns. But they still need…

Read more »