Many cheap UK shares have surged in value over the past month. Indeed, in the FTSE All-Share, 55 of the index’s constitutes, around 10% of the index, have jumped more than 40% over the past 30 days.
Some of these stocks have nearly doubled in value. However, despite this impressive performance, I reckon these shares continue to look cheap. As such, I’m still a buyer of the shares even after their recent positive performance.
Cheap UK shares on offer
Three companies in particular stand out to me as being undervalued even after their recent performance. These are Capita Group, Micro Focus, and Stagecoach.
On average, shares in these businesses have risen 105% since the beginning of November. I reckon they’re still cheap.
Capita is one of a handful of companies that looks set to emerge from 2020 in a stronger position than when it went in. A jump in contract work coupled with the group’s efforts to restructure and cut costs over the past few years means the business is on track to report a net income of £88m this year. That’s up from a loss of £64m for 20219, according to City analysts.
Based on these projections, even after rising nearly 100% over the past 30 days, the stock still looks cheap. It’s changing hands at a forward price-to-earnings (P/E) multiple of 8 falling to 5.8 for 2021. These numbers suggest the stock offers a wide margin of safety at current levels. Therefore, I’d buy Capita as part of a basket of cheap UK shares.
Micro Focus appears to me to be similarly undervalued. Shares in the business are currently dealing at a forward P/E of just under 4. This company has been struggling with rising costs and falling revenues for some time. However, after recent declines, it appears to me that most of these issues are now factored into the stock price.
Indeed, a P/E of 4 implies the market thinks Micro Focus income will drop 50% in the next few years. That’s unlikely. The City is forecasting a slight decline, but it’s less than 10%.
Based on these projections, I think there’s a strong chance the stock could continue to rise from current levels, making Micro Focus, in my opinion, one of the best cheap UK shares to buy right now.
Growth tailwind
Finally, I’ve been taking a closer look at the public transport operator Stagecoach. The public has been advised to avoid public transport during the pandemic. That has resulted in slumping revenues and profits at the bus and rail operator.
However, I believe that as the world moves towards a greener future, the government will push investment in public transport. As such, I think the company’s setback will be a temporary factor, and revenues could rebound in the medium term.
With that in mind, I’m looking to take advantage of the current depressed sentiment towards the business and buy Stagecoach as part of a basket of cheap UK shares.
