The outlook for UK shares is incredibly uncertain. The combination of Brexit, the pandemic and the global supply chain crisis has thrown a massive cloud of uncertainty over the country’s economy.
Some investors may be avoiding the market for these reasons. However, I think that could be a mistake. I reckon now is the perfect time to snap up cheap UK shares while uncertainty prevails.
Cheap UK shares
I should clarify that I am not willing to buy any stock just because it looks cheap. In my opinion, some stocks are cheap because they deserve to be.
They could be suffering from a long-term decline in profits or poor management decisions which have incurred high costs. I would avoid these businesses and those ones with a lot of debt. Too much debt is one of the most common reasons why companies fail.
Still, even after weeding out companies with the issues outlined above, I think there are plenty of undervalued opportunities in the market.
One such company is NatWest. This bank looks incredibly cheap compared to the value of its assets. As one of the largest lenders in the country, it is highly exposed to the UK economy. As such, it is easy to see why investors might want to avoid the stock.
Despite this, the group is highly profitable, has a robust balance sheet, and has been returning cash to investors with dividends. I would buy the shares to invest in the UK economic recovery over the next decade while it is trading at a depressed valuation.
I would also buy real estate investment trust Shaftesbury. Like NatWest, this company, which owns a unique portfolio of commercial properties in the West End of London, is trading at a significant discount to the value of its assets.
Commercial property values have fallen over the past year so I can see why investors might want to avoid the stock as values could always fall further.
However, the group owns a virtually irreplaceable portfolio of properties in one of the country’s most vibrant areas. While property values might jump from year to year, I believe the value of these assets will only rise in the long term. That is why I would buy the stock for my portfolio of cheap UK shares.
Even though it is one of London’s premier companies, Prudential is not really a UK corporation at all. Its primary focus is Asia, where the bulk of its business is now located.
Demand for financial services across Asia is multiplying, and Prudential is capitalising on this. Unfortunately, this growth potential is not reflected in the stock, which trades at a discount to its peers. I would acquire the shares to take advantage of this gap between valuation and growth. Challenges the company may face include competition and regulatory headwinds in its Asian markets.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Prudential. 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.