If you’re looking for cheap UK shares to buy today, the FTSE 100 is full of bargains. Today, I’m going to take a look at two such stocks I think could be great additions to any diversified portfolio of blue-chips.
Cheap UK shares
In my opinion, one of the most undervalued stocks in the FTSE 100 right now is ITV (LSE: ITV). Investor sentiment towards the largest free-to-air broadcaster in the UK plunged at the beginning of lockdown as its advertising revenue vanished. The group’s production business also reported a slump in activity.
However, in recent weeks and months, production activity has resumed. Advertising revenue has also started to return. But despite this improving fundamental performance, shares in the company continue to trade at lockdown levels. This suggests the stock offers a wide margin of safety at current levels.
The group may suffer a significant decline in income this year, but its recovery is already well underway. Unlike other cheap UK shares, the company has also been able to use the lockdown to strengthen its balance sheet, by focusing on cost control and eliminating its regular dividend.
Considering the improving fundamental performance of the group, I think there’s a high chance management will reinstate the payout later this year. City analysts are forecasting a dividend of 5.7p per share in 2021. That suggests the stock could offer a dividend yield of 8.9% on the current price.
With this high return on offer, I reckon that now could be an excellent time to buy the FTSE 100 income champion for the long term as part of a basket of cheap UK shares.
FTSE 100 stalwart
Pearson (LSE: PSON) generates the majority of its sales by providing educational material to students. This business has been impacted by coronavirus, although I think the long-term prospects for the sector are bright.
Education is a relatively defensive business, and companies like Pearson have the edge over smaller competitors. Putting together educational resources requires time, effort, and financial resources, which aren’t available to every business in the sector.
That’s where this publisher has the edge. It’s a well-known and trusted business in the industry. Thanks to this competitive advantage, City analysts are expecting the firm to recover relatively quickly from the coronavirus crisis.
Analysts are forecasting a 44% decline in earnings for 2020. However, they’re also forecasting a complete recovery in earnings for 2021. Based on these projections, the FTSE 100 company is dealing at a forward price-to-earnings (P/E) multiple of 12.9. Its long-term average is around 16, suggesting the shares offer a margin of safety at current levels.
This low valuation, coupled with the firm’s dividend yield of 3.4%, suggests to me the company can produce high total returns when owned as part of the basket of cheap UK shares.
The business also has a long track record of above-inflation dividend growth, and a relatively robust balance sheet that may help it maintain the payout through hard times.
