As a long-term investor, I like to buy stakes in what I think are great companies. But it can be hard to do that at an attractive price, as lots of other investors are trying to do the same thing.
I own a couple of cheap shares I think continue to look attractively valued, given their prospects. I would be happy to hold both for the coming decade.
JD Sports
When retailer JD Sports (LSE: JD) unveiled its strategic focus for coming years to the City last week, it was greeted with enthusiasm. That explains why the shares have gained over a third in value so far in 2023.
Despite that though, they are still 2% lower than a year ago. I think that offers great value for my portfolio. Indeed, I have been buying more shares in JD Sports lately to add to my existing holding.
Why do I think the shares are cheap? At the moment, the company has a market capitalisation of £9bn.
But after a bumper trading period in the second half of last year, the firm expects to deliver headline profit before tax and exceptional items of just over £1bn for its current financial year. The new plans could mean future financial performance is even stronger yet, meaning the prospective price-to-earnings (P/E) ratio is in single digits. That makes them cheap shares, in my book.
Ambitious growth plans
Those plans include double digit revenue growth and opening 250-350 new stores each year.
Rapid expansion can elevate risks. While sportswear-loving customers like to keep their eye firmly on the ball, it can be harder for a firm to do that when opening on average at least one store every weekday. Economic uncertainty could also reduce consumer willingness to spend, hurting revenues and profits.
But I think JD Sports may well power on. It has huge ambition as well as a proven business model. The brand is strong, the commercial operations look world-class and it competes effectively both online and offline.
Altria
The economics of making and selling cigarettes are attractive. They are cheap to produce and customers pay a hefty price for them.
That explains my investment in several tobacco manufacturers, including US giant Altria (NYSE: MO). While it may not be a household name on this side of the pond, the company owns such iconic brands as Marlboro.
Dividend aristocrat
The business is highly lucrative and that makes for juicy dividends. The yield is 8.1%.
Despite that, these look like dirt-cheap shares to me. The firm trades on a P/E ratio of around 9 although I see it as a moneymaking machine.
With over half a century of annual increases in its payout giving Altria dividend aristocrat status, why is it valued like this?
There is a risk that, as cigarette smoking continues its steady decline in popularity, Altria’s profits will go up in smoke. I think this risk is real and large. But the company’s premium brands give it strong pricing power and allow it to push up selling prices even as volumes decline. I think Altria still has many good years ahead of it.
