I reckon now is as good a time as any to buy cheap shares for my holdings before the market rallies. Two picks I’d buy when I next can are Associated British Foods (LSE: ABF) and Barclays (LSE: BARC). Here’s why!
Associated British Foods
Commonly referred to as ABF, the business is perhaps best known for its long history in producing many food products. It is also owner of the high street brand Primark, which has surged in popularity in recent years.
The shares are up 27% over a 12-month period from 1,792p at this time last year, to current levels of 2,285p.
Despite the shares rallying, they still look good value for money on a price-to-earnings ratio of 17. Although this may not be the cheapest stock among many opportunities, when I consider the enviable market position, wide footprint, history, and brand power of ABF, I reckon this is a bargain.
Next, the business has a great track record of performance growth and knows just how to navigate times of economic volatility. In addition to this, a dividend yield of 2.5% looks well covered by earnings too. However, I’m conscious that dividends are never guaranteed and past performance is not an indicator of the future.
From a risk perspective, rising costs could hurt the business as profit margins are squeezed. Plus, on the food front, many of its products are viewed as premium branded goods. Due to the cost-of-living crisis, cheaper non-branded alternatives are proving to be popular among consumers at present. This has been driven by budget retailers and supermarket disruptors such as Aldi and Lidl. Both aspects could hurt ABF’s performance and shares.
Overall I reckon ABF shares won’t stay cheap for much longer and should continue their upwards ascent.
Barclays
As one of the ‘big four’ banks, Barclays is a historical financial institution with a high street presence, credit card business, and an investment arm.
Over a 12-month period, Barclays shares are down 16% from 177p at this time last year, to current levels of 148p.
Banking stocks have struggled this year due to rising interest rates. Although it has provided extra income, defaults and credit impairments have also risen too. This is an ongoing risk I’ll keep an eye on as we’re not out of the woods of the current economic malaise we find ourselves in just yet, despite some signs of interest rates potentially being lowered and inflation figures coming down.
At present, Barclays shares look excellent value for money on a P/E ratio of four. Furthermore, a dividend yield of 5% would give me an opportunity to boost my passive income through dividends. Despite the volatility, the firm’s payouts look exceptionally well covered by 4.4 times earnings.
Overall, Barclays is another classic case of short-term risk and volatility but the potential for long-term rewards. I reckon it is one of a number of banking stocks that will thrive and flourish when the macroeconomic volatility subsides.
