There’s no question in my mind that investors have a wealth of cheap UK shares to choose from today. 2020’s triple blow of Covid lockdowns, Brexit and economic uncertainty have kept share prices low.
And a rush for so-called safe-haven investments mean many investors have been loading up on gold. The price of the precious metal has spiked more than 20% in the past 12 months.
But it’s clear to me that investors can get far more robust returns from cheap UK shares. And I’d definitely swerve gold for the chance to buy quality companies at bargain prices.
So I’ve handpicked these two cheap UK shares I’d buy now and hold long term.
Success starts at home
In my opinion there are a couple of choice bargains to be had right now. The first of these cheap UK shares I’m considering is FTSE 100 retailer Kingfisher (LSE: KGF). Some readers might see the word ‘retail’ and immediately snort in derision. But ignoring this option would be a mistake, in my opinion.
The B&Q and Screwfix owner is labelled an ‘essential’ retailer. As such it has been able to open its stores to trade throughout the pandemic.
Things went so well that Kingfisher was able to return £130m in Covid rates relief to the government. The business had seen a huge sales bump, driven by “higher interest in home improvements”, bosses noted.
Sales in the fourth quarter of 2020 were up another 16.5%, it said in its latest trading update. Significantly stronger sales growth in Spain (up 20.4%) and France (up 29.4%) also means full-year profits are now expected to be at the top end of expectations.
A P/E ratio of 10 is well below the FTSE 100 average. That makes these UK shares rather cheap.
And while Kingfisher scrapped its final dividend payout for 2020, I think it’s clear it will return in force in 2021.
Another cheap UK share
My next pick for UK shares offering high value is British American Tobacco (LSE: BATS).
The BATS share price is on sale at just 8.4 times earnings. That puts the company in my sweet spot. But even better, the tobacco specialist pays out a 7.7% dividend yield today.
I’ve learned that compounding strong dividend returns over the long term offers me the best chance to grow the most wealth.
And I’ve heard that management now expects full-year revenue growth at the top end of estimates, with the hit from Covid much lower than anticipated.
Profits and earnings per share remain strong as it switches resources away from cigarette sales to vaping. And looking further out, analysts at Morgan Stanley say the company’s ability to grow is underappreciated.
“We see a significant opportunity in BAT’s new model, just as the shares and investor interest hit multi-year lows,” they wrote.
While this share won’t appeal to ESG investors, it could offer me a healthy portfolio boost if I hold it for long enough.
So I’d ignore gold right now and focus my attention on these two cheap UK shares. Over the long term, I think they are more likely to help me grow my wealth for the future.
