2 no-brainer UK shares to buy on the dip

There are multiple beaten-down UK shares at the moment. Here are two that look particularly cheap right now.

| 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.

Graph Falling Down in Front Of United Kingdom Flag

Image source: Getty Images

While many UK shares are hitting all-time highs, others are sinking to multi-year lows due to struggles linked to the current macroeconomic environment. But as a long-term investor, I’m very tempted by these dips. Here are two UK shares I’d happily add to my portfolio today. 

A cybersecurity growth stock

Darktrace (LSE: DARK) started its time as a public company extremely strongly. In fact, in a matter of months, the Darktrace share price was able to double, and by October 2021, it had reached over 900p. Things have been far less pretty since October however, with the cybersecurity firm sinking over 60% to 360p. Over the past year, the firm has still delivered a small return of 5%. 

Despite the drop, there hasn’t been too much wrong with the company’s performance. Indeed, in the recent Q3 trading update, there was strong growth across the board. Revenues managed to climb 50% year-on-year to over $100m, and the company added 359 net new customers. Forward guidance was also raised, with revenue growth for the whole year now expected to total over 46%.

There’s a price to pay for this growth, however. Darktrace trades with a price-to-sales ratio of nearly 6, which is far over the average for UK shares. Further, the firm is nowhere near profitability. In the current macroeconomic environment, where inflation erodes the value of future earnings, this is a problem. It explains the reason why the firm has struggled in recent months. 

But I’m still tempted at current levels. For example, Cloudflare, a US peer, trades on a price-to-sales ratio of around 25 and is experiencing similar revenue growth to Darktrace. This indicates that Darktrace may now be overly beaten down. Therefore, I’m tempted to buy. 

A housebuilding share

Housebuilders have also struggled recently, due to an expectation that house prices will decline amid rising inflation and higher interest rates. There’s been some evidence of this recently, with Zoopla noting that the proportion of sellers reducing their asking price has increased. This has seen housebuilding shares suffer collectively, with Bellway (LSE: BWY) falling 36% in the past year. 

But the company’s recent performance has been strong. In fact, in the recent half-year trading update, operating profits were able to increase 11.6% to £330m. This allowed the interim dividend to rise by nearly 30%, giving Bellway a current dividend yield of 6%. It’s also covered three times by underlying earnings, leaving plenty of cash for reinvestment. 

Despite fears of declining demand for housing, as of March 2022, Bellway had a forward order book of 7,491 homes. It also expects operating margins of 18.5%, far higher than in previous years. This shows that the Bellway share price doesn’t reflect the current financial position of the company. 

With a price-to-earnings ratio of under 6, I feel that the shares are now too cheap. Therefore, I’m willing to disregard the risks of a cooling housing market and buy some Bellway stock today. 

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 considered so you should consider taking independent financial advice.

Stuart Blair has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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

Black woman using loudspeaker to be heard
Investing Articles

GSK shares plummet 15% in a week! What’s going on here?

GSK shares had a bad time last week. They're down 15% as investors' sentiment soured ahead of litigation proceedings in…

Read more »

Burst your bubble thumbtack and balloon background
Investing Articles

Stock market recovery: have all the bubbles now burst?

Asset bubbles keep on coming, and here's what I'm doing to navigate through them and invest for the stock market…

Read more »

Shot of an young Indian businesswoman sitting alone in the office at night and using a digital tablet
Investing Articles

How I’d invest £290 a month in UK shares for a passive income that beats the State Pension

UK shares can offer a lucrative path for passive income. Our writer considers a plan to double his State Pension.

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

3 of the best shares to buy now with £2,000

I reckon the best shares to buy now have strong growth in earnings and recent good news flow, such as…

Read more »

Young female analyst working at her desk in the office
Investing Articles

How I’m aiming for £500 a month in income from dividend stocks 

Here's my three-step plan for achieving a growing income from dividend stocks and three companies I'd use to help execute…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

UK shares are cheap! So why is Warren Buffett ignoring them and should you too?

Many British shares are trading cheaply and pay dividends. This is normally the hunting ground for Warren Buffett, yet he's…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

How I’ve increased my passive income by 600%

Finding the right opportunities can bring spectacular results. Here’s how our author has managed to increase his monthly passive income…

Read more »

Blue NIO sports car in Oslo showroom
Investing Articles

Could lithium shares make my Stocks and Shares ISA a goldmine?

Our writer is considering buying lithium shares for his Stocks and Shares ISA. Here, he outlines the decision process he…

Read more »