Buying super-cheap UK shares is a strategy some investors follow because evidence shows this approach can achieve market-beating returns.
Of course, returns are never guaranteed with any investment approach. Still, I believe that buying stocks at low valuations is an approach that has helped my portfolio over the past decade.
And with that in mind, here are two super-cheap UK shares I’d add to my portfolio today.
Super-cheap UK shares
When looking for cheap shares, investors often overlook growth companies. I think this is a big mistake. Stocks that look cheap compared to their prospective growth can be just as good investments as those that look cheap on other metrics.
That’s why I’d buy Vitec (LSE: VTC) for my portfolio. At first glance, this stock doesn’t look cheap. It’s trading at a price-to-earnings (P/E) ratio of 21.8. However, with earnings per share expected to rise substantially in 2021 and 2022, the stock is trading at a 2022 P/E of just 17.
Vitec provides hardware products and software solutions to the rapidly expanding content creation market. The global digital market is expected to grow at a compound annual rate of 9.1% by 2025.
If Vitec’s growth continues at this rate, the stock could currently be selling at a low-teens multiple of 2025 earnings. That looks cheap to me compared to the valuations of stocks in the same sector around the world. These stocks are trading at multiples around 25 times forward earnings.
This potential is why I believe this is one of the best cheap UK shares to buy now. That said, the company isn’t guaranteed to hit these growth targets. If growth stumbles, investors may decide to avoid the stock and push its valuation lower. That’s the most significant risk of investing in Vitec today.
Still, I’d buy the stock today based on its growth potential.
The other company I’d buy for my portfolio of cheap UK shares is Town Centre Securities (LSE: TOWN). In fact, I already own shares in the business.
I should start by saying this isn’t an investment for the faint-hearted. The real estate investment trust owns a portfolio of commercial property assets in Leeds and Manchester. Unfortunately, these have seen their valuations and income decline over the past 14 months.
It’s also a relatively small business with a market capitalisation of just £72m, at the time of writing.
Aside from these risks, the stock is selling at a price to book ratio of 0.5. I think that looks incredibly attractive. Moreover, its largest shareholders are also the founding family, which means they’re incentivised to achieve a good outcome for all investors.
Based on these reasons, I’d buy more of the stock for my portfolio of cheap UK shares, despite the risks outlined above. Of course, the company may encounter further turbulence as the economy recovers from the pandemic, but I’m encouraged by its low valuation and management ownership.
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Rupert Hargreaves owns shares of Town Centre Securities. The Motley Fool UK has recommended Vitec Group. 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.