It’s too early to claim that the new bull market is upon us. But share prices across the globe have soared again as hopes over the economic recovery have improved. That doesn’t mean that value investors can’t unearth some underpriced gems, however. There remain plenty of quality cheap UK shares out there for investors like me to choose from.
Here are a couple I’m thinking of buying for my Stocks and Shares ISA.
A cheap UK share on my radar
High hopes of a strong economic recovery have turbocharged the share prices of London’s listed recruiters over the past year. Take SThree (LSE: STHR) for instance. It’s risen almost 75% in that time as hiring across its STEM (science, technology, engineering and mathematics) sectors have improved. I like this cheap UK share’s operations in niche markets, a quality I think will deliver handsome long-term growth. But the recovery in recruitment markets is in danger of flailing if the Covid-19 crisis drags on.
Fresh jobs coming out of the US has also caught my attention for the wrong reasons. The latest non-farm payrolls report showed just 266,000 new jobs created in April. This missed the predicted 1m roles and is down sharply from the 770,000 jobs created in the prior month. The US is SThree’s second-largest market behind only Germany. A further worsening of jobs news from either of these countries, whether or not related directly to the Covid-19 emergency, could see the recruiter topple following those recent heady share price gains.
That said, I think SThree looks temptingly cheap at current prices. City analysts think earnings at the recruiter will rise 38% in the current fiscal year (to November 2021). This leaves it trading on a forward price-to-earnings growth (PEG) ratio of 0.6. Any reading below 1 suggests that a stock could be undervalued by the market. And this leaves a big margin of comfort for value investors like me who are worried that the recruiter’s immediate earnings forecasts could be blown off course. I’d happily still buy this cheap UK share for my ISA today.
A FTSE 100 share I’d buy
HSBC Holdings (LSE: HSBA) meanwhile offers plenty of all-round value today. Not only does the FTSE 100 bank trade on a rock-bottom forward PEG multiple of 0.1. This cheap UK share offers a mighty 4% corresponding dividend yield to boot. Compare that with the broader 3.5% prospective average which British stocks offer today.
Banking stocks are the amongst the most cyclical out there. Demand for their financial products picks up strongly when economic conditions improve. That’s why I think HSBC is a great buy for the new bull market. City analysts think earnings here will rise 141% in 2021, and I can see profits rising strongly over the long term as emerging market demand for banking services booms. Remember, though, the scale of profits growth at HSBC this year and beyond could be significantly hampered by the persistence of low interest rates by central banks.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings. 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.