Economic uncertainty has thrown up the opportunity to buy quality cheap shares, in my opinion.
Two picks I believe investors should consider snapping up are Barratt Developments (LSE: BDEV) and National Grid (LSE: NG.).
Here’s why!
Barratt Developments
The UK’s largest residential housing developer seems like a no-brainer opportunity, in my eyes.
Despite a tough 12-month period economically, the shares are up 6%. At this time last year, they were trading for 473p, compared to current levels of 502p.
I’ll point out the obvious, which is the current difficult housing market brought on by higher interest rates and inflation. Due to these issues, Barratt’s completions, sales, and share price have all dropped. Naturally, I am worried that if this trend continues for some time, performance and returns could be dented.
However, the future looks bright, if you ask me. I believe Barratt has the tools, brand power, and presence to navigate current stormy waters and to capitalise later down the line. My belief is linked to the chronic housing shortage in the UK, and demand outstripping supply. Once short-term economic pressures dissipate, Barratt could be primed to capitalise and boost performance and returns.
At present, the shares look very attractive on a price-to-earnings ratio of just over seven. Plus, the business looks prepared for the current turbulence and has financial strength to continue to reward investors. A dividend yield of 5.5% is attractive. However, I do understand that dividends aren’t guaranteed.
Barratt is a stock worth considering for long-term growth and returns, in my view.
National Grid
The main draw when it comes to National Grid is the firm’s monopoly on operations in the UK, as well as its defensive ability. It’s the only game in town, and operates one of the most crucial pieces of infrastructure in the country, ensuring we all get our energy.
National Grid shares have dropped 17% over a 12-month period from 1,011p at this time last year, to current levels of 832p.
The recent sharp drop has been due to a new rights issue which has pushed the share price down. However, I view this as an opportunity for investors to buy shares even cheaper. At present, the shares trade on a price-to-earnings ratio of just 13, a level not seen for some time.
From a bullish view, energy is a must for all, hence the firm’s defensive ability. Next, with its monopoly, it can earn stable revenues and reward investors. A dividend yield of 5.2% is enticing to help bag dividends and boost wealth.
Despite my obvious bullish stance, two risks concern me that I must mention. Firstly, the government could intervene and curb payout levels, hurting the passive income that I find myself drawn to.
Next, the green revolution is happening, and investment to update and maintain such a large and critical piece of infrastructure could take a bite out of profits, and hurt investor returns.
Overall, the rewards outweigh the risks, in my opinion. Being the only player in the game, and providing an essential service is a game changer, and one of the reasons I’d happily buy National Grid shares personally the next time I’m able to.
