Stock market crash: 2 ‘cheap’ shares I’d buy now

After the stock market crash, these two UK shares could just offer unbelievable value, writes Thomas Carr.

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Despite the FTSE recovering ground since the lows of the stock market crash, there are still some good opportunities for adventurous investors to pick up bargains. Several industries have seen dramatic share price falls right across the board. Thankfully for those looking to invest, I think some of these falls have been irrationally excessive.

Given the highly uncertain economic backdrop, we should be receiving discounts for investing at this moment in time. This means that we need cheap share prices, or what Warren Buffett calls ”a margin of safety”. Paying less reduces the investment risk and offers protection to our initial investment.

Luckily for us, there are plenty of cheap shares available. Quite rightly, the travel and leisure industries have been particularly hard hit. Nobody is going on holiday and nobody is visiting restaurants, hotels and gyms.

Grounded

IAG (LSE: IAG) – the owner of British Airways – is one of the biggest names in the travel industry and has been among the hardest hit in the stock market crash. The shares are still over 60% down from where they were in mid-February. Obviously, IAG is particularly badly affected by the pandemic and lockdown, with the company effectively having months of revenues wiped out.

What’s more, we can’t yet see the light at the end of the tunnel for the travel sector. We don’t know if restrictions will be lifted within the next few months, or if they will remain in place for longer. But what we do know, is that on every metric, IAG shares are cheap, trading at just two times last year’s earnings.

Despite the stock market crash, IAG’s survival does not look like it’s in doubt. The company has €9bn in cash and undrawn credit facilities that it could access if needed. Management has also looked to slash operating costs by grounding 90% of its fleet, furloughing 30,000 cabin crew, and agreeing four weeks of unpaid leave for 4,000 of its pilots.

IAG has averaged profits of just under €2bn a year, for the last five years. In a pessimistic scenario, the company could make a multi-billion euro loss this year, and break even next year. After that, if it manages to recover profits to just half of what they were before, then I’ve no doubt that this could be a very profitable investment.

On the move

Another sector that has been badly affected is housebuilding. Clearly, there are not many people buying houses at the moment. Likewise, with a serious recession looming, the prospects for the rest of the year aren’t great either.

Redrow – the housebuilder – saw the stock market crash knock more than 50% off its share price. The shares now trade at just four times last year’s earnings. Boasting impressive net profit margins of around 15%, Redrow looks well placed to keep control of its costs and deal with any economic fallout.

The housebuilder has already furloughed 80% of its workforce and extended its credit facility to £350m. That’s as well as the £89m that it had in cash at the end of last year. Post-lockdown, people will still need to move house. Transaction prices will probably be lower, but that’s exactly the kind of risk that the low share price is compensating us for.

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.

Thomas has no position in any of the shares mentioned. The Motley Fool UK has recommended Redrow. 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.

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