3 UK shares I’d buy now that they’re cheap again

UK shares offer great value right now if you pick carefully, says Roland Head. He’s found three stocks that could be too cheap to ignore.

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Many UK shares have been drifting steadily lower since 5 June, when the FTSE 100 hit a post-crash high of 6,484. The index is now nearly 9% lower, at around 5,900.

It’s tough to be optimistic about the stock market at the moment. But, in my experience, this kind of slow decline can provide great buying opportunities. Today, I’m looking at three UK shares I think are too cheap to ignore right now.

I’d back the boss at this firm

The Morgan Sindall (LSE: MGNS) share price has fallen by more than 40% from its February peak. Painful stuff. But, as a shareholder in this FTSE 250 construction group, I expect this UK share to make a gradual recovery over the next couple of years.

In the meantime, I think I’m in safe hands. Morgan Sindall is still run by founder John Morgan, who has an 8.9% (£47m) stake in the business. The business has a strong track record of profitability and cash generation. It also tends to focus on large, long-term projects such as housing and infrastructure. I think these are likely to continue, even in a recession.

Indeed, the group’s recent half-year results revealed that secured orders rose by 5% to £8bn during the first half of the year. Morgan Sindall shares are currently trading on just eight times 2021 forecast earnings. At this level, I rate the stock as a buy.

The cheapest UK share?

A forecast price/earnings ratio of four is pretty unusual. Very often, I’d see it as a sign that profits are expected to fall sharply. With iron ore pellet producer Ferrexpo (LSE: FXPO), I don’t think that’s the case.

Ferrexpo’s iron ore pellets are used to make steel. So demand could fall during a global recession, cutting profits. But my main concern here isn’t the business, which is profitable and generates plenty of cash.

What I’m worried about are the problems faced by Ferrexpo’s controlling shareholder, Ukrainian billionaire Kostyantyn Zhevago. He’s currently the subject of various allegations relating to his past business activities in Ukraine. His shareholding in Ferrexpo was frozen by Ukrainian courts in June.

Are these good reasons to avoid the stock? That’s a personal decision. My view is that the firm’s cheap valuation and high profit margins could make it worth considering. Broker forecasts suggest a forecast P/E of 4 and a 2021 dividend yield of 7%. I’m tempted at this level.

Stay calm and invest

My final pick is Moneysupermarket.com (LSE: MONY), a stock I’ve recently been buying for my own portfolio. I’ve admired this price comparison business for a long time and I think the shares offer real value at current levels.

Moneysupermarket’s share price has fallen by more than 25% over the last year. Profits are expected to fall this year and the company is investing more money in its next generation of services. In addition, the pandemic has led to a slump in comparison demand in areas such as savings, credit cards and travel insurance.

I think these short-term headwinds are likely to be a buying opportunity. Moneysupermarket remains highly profitable, with an operating margin of about 30% and strong cash generation. The dividend hasn’t been cut this year and the shares yield more than 4%.

This UK tech share now trades on just 15 times 2021 forecast earnings. For such a profitable business, I think that’s too cheap.

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 considered so you should consider taking independent financial advice.

Roland Head owns shares of Moneysupermarket.com and Morgan Sindall Group. The Motley Fool UK has recommended Moneysupermarket.com. 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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