British shares look cheap. Here are 3 I’d snap up!

Our writer is eyeing a trio of cheap looking British shares he reckons could prove smart additions to his portfolio. Here he weighs some pros and cons.

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The London stock market seems out of fashion with many investors – and it shows in some share prices. Quite a few blue-chip British shares look cheap to me.

Cost and value are not the same thing. So when I say a share looks cheap, that does not necessarily mean that it has a low price. It means that I think I can pay less for it today than the long-term value I hope to get from owning it.

If I had spare cash to put to work, here are three British shares I would happily buy today.

British American Tobacco

Some UK shares have had a tough few years – and so have tobacco stocks more broadly.

So it may come as no surprise that British American Tobacco (LSE: BATS) is 14% cheaper to buy now than it was five years ago.

One reason tobacco stocks have fallen is the investor fear that declining cigarette usage could lead to sales falling. That is definitely a risk for British American. Its cigarette volumes fell 6% last year.

But thanks to the pricing power of its premium brands and the addictiveness of nictotine, the revenue hit was not as bad. Still, revenues fell 4% year on year. Meanwhile, growth in non-cigarette sales meant that total revenues declined by only 1%.

The company booked a huge loss as it wrote down the value of some brands. But it generated almost £8bn in adjusted cash from operations. Against that, a market capitalisation of £55bn looks cheap to me.

The business raised its dividend this week. The yield of 9.3% is attractive to me.

JD Sports

Shares in JD Sports (LSE: JD) have had a miserable start to the year after a profit warning last month and are down 34%.

They are still 17% higher than five years ago, though. I think they look cheap at the current price. The market capitalisation is well under £6bn. That looks cheap given that the company still expects profit before tax and adjusted items to top £900m for the year and ended its first half with £1.3bn of net cash.

In the warning, JD said that recent trading in the peak season “was softer and more promotional than we anticipated”. There is a risk things could keep getting worse.

Directors have been buying this British share: the chief executive spent £99,000 of his own money on them last month. I would happily buy too.

Henderson Far East Income

British shares or foreign shares? Some London shares can give me lots of international exposure.

My third pick offers that. It is an investment trust with a double-digit percentage dividend yield.  

Specifically, Henderson Far East Income (LSE: HFEL) yields 11.4% at the moment.

Can that last? Asian economic slowdown is a risk to the trust’s earnings and dividends. Such a high yield often signals City fears that a dividend cut is on the cards.

Henderson Far East Income offers me exposure to some high-growth economies. The passive income prospects of its high yield also appeal to me.

The trust aims to “provide shareholders with a growing total annual dividend per share“. Even if the dividend is cut, the yield could still be fairly juicy (though it might not be). But if Asian economies perform well enough, it may be that the dividend is not even cut.

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. and JD Sports Fashion. The Motley Fool UK has recommended British American Tobacco P.l.c. 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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