Cheap shares come in all shapes and sizes. I’m more interested in why a stock is considered cheap, and could it be a shrewd buy with a view to a longer-term recovery?
Two stocks that caught my eye recently are Barclays (LSE: BARC) and Breedon Group (LSE: BREE). Here’s why I reckon they’re bargains, and why investors should be considering them now for long-term growth and returns!
Barclays
Banking stocks haven’t really recovered from the 2008 global financial crash, if you ask me. Since that time, they’ve had to navigate more than one issue. Some of these include Brexit, the pandemic, and now, the current economic malaise. So I’m not surprised to see one of the so-called big four, Barclays, trading cheaply.
The shares are on a decent run over the past 12 months. They’re up 18% in this period, from 154p at this time last year, compared to current levels of 182p.
Despite being up in recent months, Barclays’ current valuation on a price-to-earnings ratio of just 7 is hard to ignore. This is especially the case when you consider the firm’s vital position in the banking ecosystem in the UK. Furthermore, its diverse operations — including retail banking, its Barclaycard credit card, and investment arm — offer it a layer of protection, in my view.
Finally, a dividend yield of 4.4% is an attractive prospect for passive income. However, I do understand that dividends aren’t guaranteed.
From a bearish view, continued volatility could spell bad news for earnings, returns, and investor sentiment. The business could see this dented by loan impairments, and bad debts. Furthermore, the business has a track record of issues, such as the huge PPI scandal that cost it millions a few years back. Hopefully, it can avoid such issues going forward, but I’ll be watching closely.
Breedon Group
Similarly to banking stocks, the recent economic issues have hurt the construction industry, so Breedon shares also look cheap to me.
The business is an asset-rich construction materials provider and contractor with its core operations in the UK and Ireland.
Breedon shares are up 3% over a 12-month period from 363p at this time last year, to the current levels of 375p.
Inflationary pressures — as well as economic shocks — have held back lots of construction, including house building, and infrastructure projects. Continued issues could begin to dent performance and returns, and hurt profitability in the future.
What I like about the business is the fact it owns assets that actually create materials it sells, rather than buying and reselling. This gives it better pricing power and margins, which could boost performance and growth.
Furthermore, the business recently acquired a US business to try and grow in this lucrative market. If it pays off, the business could see performance and returns soar to new heights.
Looking at fundamentals, the shares trade on a price-to-earnings ratio of 11, and offer a dividend yield of 3.6%, which is attractive.
For me, Breedon is a great example of a business that could thrive once volatility dissipates.
