£10K in an ISA? I’d snap up these 5 cheap shares!

Our writer explains how, if he had a spare £10K in his ISA, he would spend it on a handful of cheap shares in well-known British companies.

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If I had spare money sitting in an ISA today, I might be tempted to wait and see what happens next in the stock market before investing it. On the other hand, with even the flagship FTSE 100 index currently throwing up a lot of cheap shares, I would probably just take what I think is the great value already on offer.

Here are five such cheap shares I would buy today for my ISA.

To help manage my risk (after all, cheap shares are sometimes cheap for a reason!) I would diversify my ISA by spreading the £10K evenly across all five.

Iconic name? Check. Large customer base? Check. Huge target market with long-term demand? Check.

So far, so good when it comes to the investment case for Legal & General.

But this is not simply a business that looks good on paper. It is already a proven performer, with post-tax profits last year coming in at £2.3bn.

Despite that, the shares trade on a price-to-earnings (P/E) ratio of six while offering a dividend yield of 8.6%.

Rocky markets could lead investors to withdraw funds, hurting profits. But in the long term, I am confident about the prospects for the company.

Phoenix

Insurer Phoenix announced its interim results this week. It held the interim dividend flat and the shares currently yield 9.8%.

With a £2.2bn loss last year, are these really cheap shares?

Accounting rules for financial services institutions like Phoenix are not always flattering. Considering cash generation, the business does look cheap to me. It expects to generate around £1.4bn of cash this year, which is equivalent to over a quarter of its market capitalisation.

Volatile markets pose a risk to earnings. I like the cash generation potential, though.

M&G

Another business that reported its interim results this week – and boosted the half-year dividend – is M&G.

With a strong brand, large customer base, and ongoing demand for its asset management products, I think the business is in good shape.

The yield is 9.8%. An adjusted operating profit of £380m in the six months under review makes the company look cheap to me, with a market capitalisation beneath £5bn.

One risk I see is reduced consumer spending in many markets leading to a net outflow of funds and lower commissions. For now, though, the company continues to see a net inflow aside from in its Heritage division.

JD Sports

Retailer JD Sports also published its interim results this week. Revenues grew 8.3% compared to the prior year period.

I like the unique market positioning and global footprint. An ambitious shop expansion programme could push up costs. While basic earnings per share soared 30% year on year, profit before tax and adjusted items actually fell slightly.

The interim dividend more than doubled. The share price looks cheap to me for what the results described as “a very cash generative business“.

British American Tobacco

With a P/E ratio of seven, British American Tobacco also strikes me as a cheap share.

Declining cigarette sales are a risk to revenues and profits. But the company is expanding its non-cigarette lines and still make huge profits from cigarettes.

I like its high yield of 8.4% to boot.

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.

C Ruane has positions in British American Tobacco P.l.c., JD Sports Fashion, Legal & General Group Plc, and M&g Plc. The Motley Fool UK has recommended British American Tobacco P.l.c. and M&g Plc. 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.

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