The UK stock market is having a good run at the moment. This year, the FTSE 100 index has achieved all-time highs. There are still plenty of opportunities for those who like value however. Here are three cheap shares to consider this month.
A FTSE 100 bargain?
First up is healthcare giant GSK (LSE: GSK). Recent full-year 2022 results showed that the company has momentum at the moment.
For the year, the company generated sales of £29.3bn, up 13% at constant currency. Adjusted earnings per share (EPS) came in at 139.7p, up 15% year on year at constant currency.
Looking ahead, GSK wants to continue generating solid growth. For 2023, it expects turnover to rise 6-8% and EPS to increase 12-15%.
The valuation here is very undemanding however. Taking the average point of the expected EPS growth (13.5%) and applying that to last year’s earnings, the forward-looking price-to-earnings (P/E) ratio is just nine. I see value at that multiple.
Now one issue to be aware of here is Zantac litigation, with the potential to hit profits. This is probably why the stock is so cheap.
However, I think a lot of uncertainty is priced into the stock already.
Cheap as chips
Next, we have 3i Group (LSE: III), a FTSE 100 investment company that operates in the private equity and infrastructure fields.
This business is performing pretty well right now. For example, the company recently said European discount retailer Action, which is part of its private equity portfolio, generated net sales growth of 30% for the 12 months to 1 January.
The stock is super cheap though. Currently, the price-to-earnings (P/E) ratio here is just four. That seems too low to me.
It’s worth noting that 3i’s chairman David Hutchison (who has a background in investment banking) recently purchased around £230,000 worth of company shares. This got my attention. Insiders only buy stock for one reason – they expect it to rise.
I’ll point out that 3i’s revenues and profits tend to fluctuate. Next year, revenue is expected to fall. Bur I’m encouraged by the recent insider buying and I still see value on offer.
Big dividend increase
Finally, check out DS Smith (LSE: SMDS). It’s a packaging company that specialises in sustainable solutions.
This is another company that appears to be doing quite well at the moment. For the first half of its current financial year (ending 30 April), it generated constant currency revenue growth of 26%.
What stands out to me here is that the company raised its H1 dividend by a huge 25% (the yield is around 5% at the moment). This suggests management is confident about the future.
The stock can be picked up at a low valuation though. Currently, DS Smith has a forward-looking P/E ratio of just eight.
One issue to be aware of here is that packaging is a cyclical industry. So a prolonged economic downturn could hurt the company.
However, in the long run, DS Smith looks set to enjoy tailwinds from both the growth of online shopping and the increasing focus on sustainability. So I think it’s worth a closer look right now.
