I reckon there are plenty of cheap shares out there caused by market volatility. I’m listening to Warren Buffett who once said “to be greedy when others are fearful.”
I feel like there’s been a conveyor belt of issues hampering markets in recent years.
Starting with Brexit — its implications still continue to have a dampening effect — we then moved into a global pandemic. As the post-pandemic recovery began to gain traction, macroeconomic turmoil reared its head. We’re living in a high-inflation, high-interest economy that has caused soaring energy and food prices, as well as a cost-of-living crisis.
If you add the recent tragic geopolitical events of late, it’s no wonder markets are faltering.
Understanding value and price
It’s easy to be fooled into thinking bargain shares are those that trade cheaply in price. Surely a £1 share is better value for money than a £10 share? Wrong.
I’ve learnt that lots of due diligence is required to understand the true value of a stock. But in theory, I might be getting value for money by paying £10 a share for an established business with growth prospects and solid fundamentals. This is compared to paying £1 a share for a small-cap startup that hasn’t been around too long.
One of the valuation metrics I use is a price-to-earnings ratio. There are other metrics, too, but this is a common one used by investors everywhere. Value can be measured by a business’s standing and other aspects as well.
Is the stock in question an established business with lots of information readily available or is it a startup with little information to review? Who are its competitors? Does it dominate the market? What does its balance sheet look like? This could be key as if economic issues continue, has it got enough cash in the bank to stave off issues? What about growth aspirations and possibilities? These are just a few that I consider.
Two shares I’m targeting
I don’t have lots of cash stuffed down the back of my sofa to buy all of the shares I like the look of. However, I’ve got my eye on a few quality stocks that have suffered at the hands of the aforementioned issues and fallen in value.
Aviva shares look good value for money right now on a price-to-earnings ratio of 10. As one of the largest car insurance businesses in the UK, it possesses a good footprint and presence in the market. Plus, it has defensive qualities because car insurance is a legal requirement in the UK.
The UK’s gas and electricity transmission system owner National Grid is another stock looking good on a multiple of four. As it has a monopoly on the service it provides, performance should remain pretty stable.
Both of these stocks would also boost my passive income through dividends. Their dividend yields are 5.7% and 7.7% respectively. The FTSE 100 average is 3.9%. However, it’s worth remembering that dividends are never guaranteed.
To conclude, there are plenty of cheap-looking shares on the market. However, not all will offer value for money or boost my holdings so I need to be careful and do my due diligence before I part with my hard-earned cash.