3 cheap stocks I’d buy after Friday’s market mini-meltdown!

The FTSE 100 dived by 3.6% in Friday’s mini-meltdown, leaving most share prices down in the dumps. But I’d happily buy these three cheap stocks today.

| 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.

On Friday, global stock markets suffered a mini-meltdown. Following the discovery of a new Covid-19 variant, investors panicked, sending share prices tumbling around the globe. The UK’s FTSE 100 index lost 3.6% on the day, while the US S&P 500 index dropped by 2.3%. The good news about such market dips is that they can provide opportunities to buy cheap stocks at discounted prices. Here are three lowly rated UK shares that I don’t own, but would happily buy after Friday’s discount sale.

Cheap stocks #1: British American Tobacco

The first of the cheap stocks I’d buy after Friday’s falls is British American Tobacco (LSE: BATS), a major manufacturer of tobacco, cigarettes and vaping products. Although tobacco consumption is falling in the developed world, it’s rising in developing nations. Many ethical investors wouldn’t touch BAT, because its products harm and kill. But I’m attracted to this undervalued share for its income-generating ability. After falling 2.7% on Friday, BAT shares closed at 2,541.27p, valuing the group at £58.3bn. Right now, this share is rated at 9.4 times earnings, producing an earnings yield of 10.6%. Even better, BAT offers a dividend yield of 8.5% a year — more than double the FTSE 100’s 4.1% or so. That’s very tempting to an income-seeking investor like me. But BAT has £40.5bn of net debt on its balance sheet, making it somewhat riskier than it first appears.

Recovery stock #2: Lloyds Banking Group

As a leading lender to UK homebuyers, borrowers and businesses, Lloyds Banking Group (LSE: LLOY) saw its shares become one of Friday’s biggest fallers. The Lloyds share price dived 3.69p to 46p, down 7.4% on the day and valuing the Black Horse bank at £33.7bn. This leaves the second of my cheap stocks standing 10.8% below its 52-week high of 51.58p, set on 2 November. Obviously, if the new Omicron variant is nastier than Delta, then fresh social restrictions could choke off the UK’s economic recovery. But, to me, Lloyds shares offer genuine long-term value at current levels. The bank’s stock trades on a lowly rating of just seven times earnings, for an earnings yield of 14.3%. What’s more, although Lloyds’ dividend yield is just 2.7% a year (following its suspension in April 2020), there’s plenty of scope for this to increase. Given these attractive fundamentals, I would add Lloyds to my family portfolio at current price levels.

Undervalued share #3: M&G

The third of my cheap stocks is another financial firm: asset manager M&G (LSE: MNG). On Friday, the M&G share price lost 10.95p (-5.5%) to close at 187.95p. This values the ex-Prudential arm at £4.9bn, making it a relative minnow within the FTSE 100. At their 52-week high, M&G shares peaked at 254.3p on 1 June. Today, they trade 66.35p lower, a steep discount of more than a quarter (-26.1%) from their summer high. After this heavy fall, this cheap UK share now offers a whopping dividend yield of almost 9.8% a year. That’s nearly 2.5 times the dividend yield from the wider Footsie. Also, it’s one of the highest cash yields in the entire UK stock market. For me, M&G is one of the cheapest of cheap shares to have fallen into Mr Market’s bargain bin. However, if stock markets weaken in 2021-22, then M&G’s profits, earnings and dividends might fall.

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.

Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended British American Tobacco and Lloyds Banking 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.

More on Investing Articles

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »