Over the past month, many cheap UK shares have surged in value. Despite this performance, I believe many of these stocks continue to look undervalued.
As such, I’m considering adding some of these companies to my portfolio. As the world moves on from the pandemic, I think there’s a high probability they will continue to achieve positive returns for investors.
Buying cheap UK shares
I’ve long been a fan of Virgin Money (LSE: VMUK). I like the way the company does business. It’s been trying to change the UK retail banking market for years, and it’s succeeding.
Unfortunately, the pandemic has set back some of the group’s growth plans. This week, the lender reported £500m of loan losses related to the coronavirus crisis.
However, management remains hugely optimistic about the group’s long-term prospects. Despite the £500m of projected losses, management believes the company can still achieve a double-digit return on equity in the medium term. If it can hit this target, it would make the lender one of the most profitable banks in Europe.
This level of profitability isn’t guaranteed. Nevertheless, I think it shows Virgin’s potential.
What’s more, despite the stock’s recent performance, it still stands out as one of the best cheap UK shares. It’s changing hands at a price-to-book (P/B) ratio of less than 0.5. Considering the lenders potential, I think this severely undervalues the business, which is why I’m considering buying the stock in the near future.
The second company want to highlight today is coach operator National Express (LSE: NEX). Government advice to avoid public transport this year has hurt this corporation. I think this is likely to be a short-term effect. Over the next decade, the government has promised to concentrate on reducing carbon emissions from the country. While electric cars will meet some of this ambition, public transport will also play a key role.
As one of the largest coach and bus operators in the UK, National Express has the economies of scale and financial firepower to rise to this challenge. It’s already committed to having a zero-emission bus fleet by 2030.
This enterprise is going to face some challenges in the near term. Therefore, it’s not suitable for all investors. Other cheap UK shares may face more favourable backdrops in the short term.
Still, in the medium to long term, I’m excited about the group’s potential. And, right now, despite the stock’s recent positive performance, I can pick up the shares while they are dealing at one of the lowest levels in the past decade.
While this might not be one of the most exciting cheap UK shares on the market, I’m highly excited about the operator’s long-term potential as the world moves towards a more sustainable future.
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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.