I think British equities look incredibly cheap. With that in mind, I have been looking for dirt-cheap UK shares to buy now.
Here are three companies I would buy for my portfolio based on their current fundamentals.
UK shares to buy now
At the top of my list is the telecommunications giant Vodafone (LSE: VOD). Currently trading with a 6% dividend yield and a price-to-free-cash flow ratio of just four (compared to the telecommunication services sector average of 6.6), I think the stock offers value at these levels.
Telecommunications can be a defensive industry because it requires billions of pounds to build a telecommunications network. That means the market tends to consolidate around a few key players. Vodafone is one of these.
Unfortunately, this also means the group has to spend heavily to maintain its position at the top of the market. This means the organisation has high capital spending costs. It has also acquired a lot of debt in recent years to fund spending. Both of these factors could impact its shareholder returns in the long term, so that’s something I will keep an eye on going forward.
Nevertheless, I think this is one of the best UK shares to buy now based on its income potential and current valuation.
Premier Foods (LSE: PFD) came into its own last year. After several years of losses, booming demand for its cakes and home cooking goods skyrocketed. Net profit hit £47m. To put that into perspective, between 2015 and 2019, the group lost £117m.
The extra income has allowed the firm to reduce debt, invest in its operations and draw a line under its pension issues.
I think these actions have put the company in a great place to succeed over the next few years. That’s why I would buy the stock for my portfolio today. As a bonus, it’s currently dealing at just 9.2 times forward earnings, compared to the market average of 16.
That said, the firm does face some risks. The food and retailing industry is highly competitive. As the company’s history shows, profit is not always guaranteed. What’s more, while Premier’s debt has come down since 2015, it’s still relatively high. A sudden increase in interest rates could derail the organisation’s recovery plans.
The last company on my list of the best UK shares to buy is Dixons Carphone (LSE: DC). The risks this retailer faces are evident. It has reported losses for the past two years as customers have moved online, disrupting its business model. This has forced management to conduct a vast overhaul of the business.
A lot hinges on the success of this overhaul. If it’s a success, City analysts reckon the business will return to profit this year. If not, then it could be another year of losses, which would dent investor sentiment towards the enterprise.
I think Dixons’ valuation mitigates these risks. At the time of writing, the stock is trading at just nine times projected 2022 profits. As I highlighted above, there’s no guarantee the firm will hit this target, but if it does, the stock could see a substantial re-rating, in my opinion. That’s why I would buy Dixons for my portfolio today.
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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.