2 tempting cheap shares to consider buying for long-term returns and growth

These cheap shares are being held back by wider market issues. Buying some now could be a shrewd move ahead of greener pastures in the future.

| More on:

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

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.

Sumayya Mansoor has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays 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.

More on Investing Articles

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

Analysts say this amazing FTSE 100 stock is a takeover target!

This FTSE 100 stock's one of the worst-performing companies on the index in 2024. So why might other companies want…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

5.4% yield! 2 UK dividend shares to consider for a £1,080 passive income

I think these UK shares could provide a large and sustainable passive income. And they could be great buys today…

Read more »

Investing Articles

Here’s how investing £250 a month could bag me over £10K in passive income annually

This Fool breaks down how she would go about building a passive income stream worth over £10,000 annually to enjoy…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

I’d snap this FTSE 250 stock up in a heartbeat for juicy returns and growth!

Sumayya Mansoor explains why this FTSE 250 property stock is firmly on her radar as she looks to buy stocks…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

1 dirt-cheap FTSE 100 stock investors should consider buying in June

The FTSE 100 is littered with bargains, according to our writer. She explains why investors should be taking a closer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

The Legal & General share price has gone nowhere. Why?

The Legal & General share price has performed much worse than the the FTSE 100 over the past five years.…

Read more »

Investing Articles

Where will the BT share price go in the next 12 months? Here’s what the experts say

The BT share price has been sliding for years. But after the latest set of results, it looks like the…

Read more »

Investing Articles

Are National Grid shares now a brilliant bargain?

National Grid shares look exceptionally cheap following last week's selloff. Is now the time to buy the FTSE 100 firm…

Read more »