Many UK investors concentrate on blue-chip indices such as the FTSE 100 and FTSE 250 when looking for dirt cheap shares to buy. I think this is a mistake. In my opinion, the FTSE All-Share contains just as many exciting companies.
This index is much more diverse than its larger peers. Specifically, it’s made up of the top 600 most prominent public companies in the UK, including constituents of both the FTSE 100 and FTSE 250, as well as many other smaller growth stocks.
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Research shows those smaller growth stocks can outperform their larger peers in the long run. That’s why I’ve always owned a selection of these stocks alongside my blue-chip holdings. And I think the FTSE All-Share is the perfect place to find these gems.
Dirt-cheap FTSE All-Share stocks
N Brown (LSE: BWNG) has really fallen out of favour with investors recently. The pandemic has slammed the fashion retailer like a hurricane. Analysts are forecasting a near-90% decline in earnings for the business in 2020.
These figures look bad, but I’m not interested in what the corporation has done. I’m interested in what it’s going to do. N Brown recently announced it would be raising £100m to pursue an online growth strategy. The business already has a large presence online and, as a result of the pandemic, it’s decided to double down. The money will be used to improve the company’s online offering and infrastructure.
I think this is the right decision. Which is why I’m considering adding the FTSE All-Share stock to my portfolio today. Not only do the shares look cheap at current levels, according to my figures, but the company is also embarking on an ambitious growth plan. And that could lead to substantial earnings growth in the years ahead. I think investors will be well rewarded as the transformation takes shape.
Invest in trading
Most investors won’t have heard of FTSE All-Share group TP Icap (LSE: TCAP). However, the organisation provides an essential service in the financial markets. It acts as an interdealer broker, bridging the gap between buyers and sellers of over-the-counter derivative contracts. The company’s traders deal in products such as oil and gas and soft commodities such as wheat and corn, as well as precious metals and foreign exchange.
This business has relatively low-profit margins, so volume matters. TP is one of the largest inter-dealer brokers in the world, and this gives it a strong competitive advantage. What’s more, the company makes more money in volatile markets. Therefore, projections suggest the group will report substantial earnings growth in 2020.
Right now, the company’s trading at a forward price-to-earnings (P/E) multiple of just 6. The stock also supports a dividend yield of 6.2%. That’s around 50% above the FTSE All-Share average. I believe this severely undervalues the business, which is why I’m currently eyeing the stock. And even if the shares don’t respond positively in the medium term, that 6.2% dividend yield means I’ll be paid to wait for the firm’s operating performance to improve.