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.

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.

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 assessed. 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

Close-up of British bank notes
Investing Articles

Here’s how big a second income we could target from a Stocks and Shares ISA

Want to invest regularly to build up a second income to provide comfort in retirement? Let's see what we might…

Read more »

Front view of aircraft in flight.
Growth Shares

Why now is a crucial time for the easyJet share price

Jon Smith takes a closer look at the movements in the easyJet share price and explains what it reveals to…

Read more »

Young happy white woman loading groceries into the back of her car
Investing Articles

Since January, the sizzling NatWest share price has turned £10k into…

The NatWest share price has been red hot in recent years, and Harvey Jones assumes that it has to cool…

Read more »

Typical street lined with terraced houses and parked cars
Growth Shares

Red flag! This FTSE 100 stock looks really overvalued to me

Jon Smith explains why he believes a FTSE 100 stock's overvalued and where he can find better ways to get…

Read more »

Finger clicking a button marked 'Buy' on a keyboard
Investing Articles

2 cheap UK dividend shares to consider buying in an ISA today

When I look for dividend shares to hold for the long term, I seek out companies in essential business that…

Read more »

White female supervisor working at an oil rig
Investing Articles

Here’s what £10k invested in Shell shares one year ago is worth today…

Brokers were expecting good things from Shell shares a year ago, Harvey Jones says, so how have things panned out?…

Read more »

Girl buying groceries in the supermarket with her father.
Investing Articles

Q1 results give the Tesco share price a boost, but is it still cheap?

The Tesco share price is back in positive territory year to date after a brief dip, so what does the…

Read more »

Middle aged businesswoman using laptop while working from home
Investing Articles

£10,000 invested in Tesco shares 6 months ago is now worth…

Tesco shares have demonstrated robust growth in recent years. Dr James Fox asked whether the stock could still push higher…

Read more »