3 cheap UK shares to buy

Rupert Hargreaves explains why he’d buy these cheap UK shares today as they’re all benefiting from growth tailwinds.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I like to devote a portion of my investment portfolio to cheap UK shares. Historically, cheap stocks have been shown to outperform the market in the long run, although this isn’t always the case. 

Still, even though cheap stocks aren’t guaranteed to outperform, I believe owning them introduces some diversification to my portfolio. As such, here are three cheap UK shares I’d buy today. 

Cheap UK shares I like

The first stock on my list is the utility group Centrica (LSE: CNA). This company has suffered some significant setbacks in recent years, but has overcome these challenges. 

Over the next few years, I think the company can stage a recovery. After reorganising the operation and selling off non-core divisions, it’s now better placed to make a comeback. 

City analysts forecast a net profit of £191m this year, followed by £356m in 2022. Based on these numbers, the stock’s trading on a forward price-to-earnings (P/E) multiple of 8. Based on this valuation, I’d buy the company for my portfolio of UK shares.

But while the stock may look cheap, I think it’s important to keep an eye on competition. Previously, Centrica has struggled to grow as cheaper competitors have stolen market share. This is the most significant risk facing the company today.

Defensive market

Alongside Centrica, I’d also acquire agriculture and engineering group Carr’s (LSE: CARR) for my basket of cheap UK shares. I think the agriculture side of this business is the most exciting.

This division develops and sells a range of branded animal nutrition products. This market is relatively defensive, and demand will only increase as the country’s population and the number of animals required to feed it grows.

The group’s figures for 2020 show the defensive nature of the business. Earnings per share declined by just 3% last year, despite the pandemic. 

Right now, the stock is trading at a 2022 P/E ratio of 12.3. It also supports a 3.1% dividend yield. I think these figures look attractive as Carr’s benefits from the UK economic recovery. Considering its growth potential, I think it deserves a higher multiple. 

One challenge the company could face is rising costs. Higher input costs in its feed and engineering businesses could reduce profit margins if they can’t be passed on to customers. 

Builders market

The final company I’d acquire for my portfolio of cheap UK shares is bathroom and construction components supplier Norcros (LSE: NXR). With the UK is currently experiencing a building boom, Norcros is reaping the benefits.

According to the City analysts’ projections, which are based on the company’s own forecasts, earnings per share are expected to increase 44% in its current financial year. If the firm hits this target, the stock is currently selling at a forward P/E of 9. 

Of course, these are just projections. There’s no guarantee the company will hit this target. Nevertheless, I think they highlight its potential. The stock also offers a dividend yield of 2.9%, at the time of writing. 

Like Carr’s, Norcros also faces the challenge of trying to navigate rising costs. These could hold back growth if the company can’t pass them on to consumers, or if rising prices put consumers off buying. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Norcros. 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.

More on Investing Articles

Investing Articles

Penny stocks to consider buying while their prices are this cheap

Some of the penny stocks I've been watching have already climbed above the 100p level. But I see potential in…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

Revealed! One of the hottest growth, value, and dividend shares to buy today

This high-dividend, low-cost company is also one of the London stock market's most exciting growth shares, writes Royston Wild.

Read more »

Investing Articles

£20,000 in savings? Here’s how I’d target a £2,219 monthly passive income with FTSE 100 shares

Investing in FTSE 100 shares can be a great way to turn a regular investment into a life-changing passive income…

Read more »

Investing Articles

These are the most popular 2024 Stocks and Shares ISA picks so far

After a few tough years, it looks like the 2024 Stocks and Shares ISA season is getting off to a…

Read more »

Investing Articles

This FTSE 100 ETF may be the simplest way to become a stock market millionaire

Ben McPoland considers one very straightforward stock market investing strategy that could lead to a million-pound portfolio.

Read more »

Investing Articles

I’d buy 11,220 Legal & General shares for £200 a month in passive income

Our writer considers how much money investors would have to put into Legal & General (LON:LGEN) shares to target £2,400…

Read more »

Fireworks display in the shape of willow at Newcastle, Co. Down , Northern Ireland at Halloween.
Investing Articles

These 2 magnificent FTSE 250 shares are on sale right now!

These FTSE 250 companies still look cheap, despite recent share price gains. Here's why our writer Royston Wild thinks they’re…

Read more »

Blue NIO sports car in Oslo showroom
Growth Shares

Down 36% in 2024, how low could NIO shares go?

The electric vehicle sector has seen some tremendous volatility in recent years, but what does the future hold for NIO…

Read more »