My inbox has been full of Black Friday deals all week, but nobody’s offering discounts on cheap shares. Not that I’d rush out and buy a stock on a one-day deal, but I am lining up some candidates for the New Year.
I don’t need any sweetener offers anyway, as I reckon there are already lots of great value shares out there.
Here’s a couple that I think bargain hunters could do well to consider while they still look cheap.
Best of both worlds
We often a face a trade-off between a low price-to-earnings (P/E) valuation and a high dividend yield. But right now, some shares offer both.
Legal & General (LSE: LGEN) is one, with a forecast dividend yield of 9.3%. A consistent annual return like that could be enough to turn a £20,000 Stocks and Shares ISA allowance into nearly £120,000 in 20 years if it’s reinvested each year.
And the P/E ratio? Forecasts for this year put it at around 12, which might not scream “buy me“. But with earnings per share (EPS) predicted to treble between a rotten 2023 and a much better 2026, it could drop to under nine.
Insurance ups and downs
The insurance sector can be cyclical however, and P/E values can sometimes mislead depending on what part of the cycle we’re in.
Also, financial sector dividends can be among the first to suffer in any economic downturn. And never mind new downturns, we’re still not clear of the last one.
Do the low Legal & General share price and high dividend offer enough to compensate for the risk? I think they do. But I really think only those wth a long enough horizon to cover the likely ups and downs should consider a stock like this.
More sector weakness
Talking of ups and downs, housebuilder Taylor Wimpey (LSE: TW.) has been through a few.
We don’t have quite the same potentially winning value combination as Legal & General. But its 7.3% forward dividend is still up with the best in the FTSE 100. And the high-ish P/E for 2024 of 17 is forecast to drop to 11 by 2026.
Oh, and the dividend yield could reach 7.7% by then, according to City predictions.
Volatile share price
The Taylor Wimpey share price fell back in November after a bullish couple of years.
The recent Budget, it seems, is the cause. An extra £25bn of employer national insurance contributions will squeeze profit margins. And the Bank of England says the budget could push inflation up to 3% in 2025, which won’t help mortgages.
It takes some of the shine off Taylor Wimpey’s 7 November update. CEO Jennie Daly put 2024 UK sales “towards the upper end of our guidance range of 9,500 to 10,000 homes“.
That’s after “steady signs of improvement in customer demand as mortgage rates reduced and affordability improved“.
Buy consensus
Whatever the short term might hold, City analysts have strong buy ratings on both these stocks. I have them on my ISA candidates list for early 2025.
