£10K in an ISA? I’d snap up these 5 cheap shares!

Our writer explains how, if he had a spare £10K in his ISA, he would spend it on a handful of cheap shares in well-known British companies.

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.

Elevated view over city of London skyline

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.

If I had spare money sitting in an ISA today, I might be tempted to wait and see what happens next in the stock market before investing it. On the other hand, with even the flagship FTSE 100 index currently throwing up a lot of cheap shares, I would probably just take what I think is the great value already on offer.

Here are five such cheap shares I would buy today for my ISA.

To help manage my risk (after all, cheap shares are sometimes cheap for a reason!) I would diversify my ISA by spreading the £10K evenly across all five.

Iconic name? Check. Large customer base? Check. Huge target market with long-term demand? Check.

So far, so good when it comes to the investment case for Legal & General.

But this is not simply a business that looks good on paper. It is already a proven performer, with post-tax profits last year coming in at £2.3bn.

Despite that, the shares trade on a price-to-earnings (P/E) ratio of six while offering a dividend yield of 8.6%.

Rocky markets could lead investors to withdraw funds, hurting profits. But in the long term, I am confident about the prospects for the company.

Phoenix

Insurer Phoenix announced its interim results this week. It held the interim dividend flat and the shares currently yield 9.8%.

With a £2.2bn loss last year, are these really cheap shares?

Accounting rules for financial services institutions like Phoenix are not always flattering. Considering cash generation, the business does look cheap to me. It expects to generate around £1.4bn of cash this year, which is equivalent to over a quarter of its market capitalisation.

Volatile markets pose a risk to earnings. I like the cash generation potential, though.

M&G

Another business that reported its interim results this week – and boosted the half-year dividend – is M&G.

With a strong brand, large customer base, and ongoing demand for its asset management products, I think the business is in good shape.

The yield is 9.8%. An adjusted operating profit of £380m in the six months under review makes the company look cheap to me, with a market capitalisation beneath £5bn.

One risk I see is reduced consumer spending in many markets leading to a net outflow of funds and lower commissions. For now, though, the company continues to see a net inflow aside from in its Heritage division.

JD Sports

Retailer JD Sports also published its interim results this week. Revenues grew 8.3% compared to the prior year period.

I like the unique market positioning and global footprint. An ambitious shop expansion programme could push up costs. While basic earnings per share soared 30% year on year, profit before tax and adjusted items actually fell slightly.

The interim dividend more than doubled. The share price looks cheap to me for what the results described as “a very cash generative business“.

British American Tobacco

With a P/E ratio of seven, British American Tobacco also strikes me as a cheap share.

Declining cigarette sales are a risk to revenues and profits. But the company is expanding its non-cigarette lines and still make huge profits from cigarettes.

I like its high yield of 8.4% to boot.

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.

C Ruane has positions in British American Tobacco P.l.c., JD Sports Fashion, Legal & General Group Plc, and M&g Plc. The Motley Fool UK has recommended British American Tobacco P.l.c. and M&g 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.

More on Investing Articles

Smart young brown businesswoman working from home on a laptop
Investing Articles

Have I left it too late to buy Nvidia shares?

When the whole world was racing to buy Nvidia shares, Harvey Jones decided they were overhyped. Does the recent dip…

Read more »

Dividend Shares

I asked ChatGPT to pick me the best passive income stock. Here’s the result!

Jon Smith tries to make friends with ChatGPT and critiques the best passive income pick the AI tool suggested for…

Read more »

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

Hargreaves Lansdown’s clients are buying loads of this US growth stock. Should I?

Our writer's noticed that during the week after Christmas, many investors bought this US growth stock. He asks whether he…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Greggs shares plunge 11% despite growing sales. Is this my chance to buy?

As the company’s Q4 trading update reveals 8% revenue growth, Greggs shares are falling sharply. Should Stephen Wright be rushing…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

Will ‘biggest ever Christmas’ help keep the Tesco share price climbing in 2025?

The Tesco share price had a great year in 2024. And if 2025 trading continues in the same way, we…

Read more »

Investing Articles

This dirt cheap UK income stock yields 8.7% and is forecast to rise 45% this year!

After a disappointing year Harvey Jones thinks this FTSE 100 income stock is now one worth considering for investors seeking…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

With much to be cheerful about, why is this FTSE 250 boss unhappy?

JD Wetherspoon, the FTSE 250 pub chain, is a British success story. But the government’s budget has failed to lift…

Read more »

Chalkboard representation of risk versus reward on a pair of scales
Investing Articles

2 huge investment risks I’m worried about in 2025

Ken Hall looks at two big investment risks that are keeping him up at night as we enter 2025 with…

Read more »