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:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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

Investing Articles

Down 23%, are Greggs shares a long-term bargain?

Christopher Ruane slices into some possible pros and cons of buying Greggs shares for his portfolio after they slid by…

Read more »

Investing Articles

This boring FTSE 250 stock has an incredible earnings forecast!

This FTSE 250 stock has moved sideways for years. It certainly hasn’t rewarded shareholders. However, things could change in the…

Read more »

Investing Articles

Make or break: could US trade tariffs hurt the UK stock market?

Mark Hartley examines the knock-on effect that Trump tariffs could have on the UK stock market and considers a stock…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

I don’t care if my passive income stock Phoenix Group doesn’t rise this year – I’ve got the 10.1% yield!

A firm’s yield moves in the opposite direction to its share price, so with my core passive income holdings I…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Vodafone’s share price is down 13% to 69p despite promising Q3 results, so it is an unmissable bargain for me?

Vodafone lost ground after its recent results, but they seemed promising to me, which leaves the share price looking significantly…

Read more »

Buffett at the BRK AGM
Investing Articles

Is Warren Buffett right about this 1 thing when it comes to Lloyds shares?

With the words of Warren Buffett ringing in his ears, our writer considers whether the Lloyds share price will do…

Read more »

Investing Articles

The FTSE 100 is behaving remarkably right now!

After years of underperforming global markets, the FTSE 100 has suddenly sprung to life. Indeed, it's rushed ahead to overtake…

Read more »

Investing Articles

3 passive income ideas to consider with FTSE 100 shares

A steady or lump sum investment in FTSE 100 shares and funds can create a formidable second income for investors.…

Read more »