Forget short-term pain! 2 dirt cheap UK stocks to consider for long-term gain

The London stock market remains packed with bargains at the end of 2024. Royston Wild discusses two of his favourite UK value stocks today.

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Are you searching for the UK’s best cheap stocks to buy? It can be a lucrative investing tactic to consider. Purchasing low-cost shares can provide scope for significant capital appreciation over the long term.

With this in mind, here are two companies I think deserve a close look, despite the possibility of some near-term trading turbulence.

Springfield Properties

Created with Highcharts 11.4.3Springfield Properties Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Data from the housing market remains highly encouraging for builders such as Springfield Properties (LSE:SPR). Latest house price data from Nationwide showed average property values rise at their fastest for two years in November.

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This doesn’t mean construction firms are out of the woods just yet. Sales at Springfield — which dropped 19.8% during the financial year to May — may continue to struggle next year. That is, if sticky inflation keeps interest rates around current levels.

However, it’s my belief that this threat may be baked into the firm’s low valuation. At 87p per share, it trades on a forward price-to-earnings (P/E) ratio of 10.9 times. This makes it one of the cheapest housebuilders on the London Stock Exchange.

Meanwhile, Springfield shares also trade on a price-to-earnings growth (PEG) ratio of just 0.8 for fiscal 2025. Any reading below 1 implies a stock’s undervalued.

I believe the robust long-term market outlook makes the builder worth serious consideration. Estate agent Knight Frank believes average home prices will rise a cumulative 19.3% during the five years to 2029. That’s because buyer demand will likely continue to outpace supply.

Analysts at Edison note that “the UK population has risen every year since 1978 and is expected to rise every year for the next 30 years“. Springfield shares could be worth considering as a lucrative way to capitalise on this trend.

Custodian Property Income REIT

Created with Highcharts 11.4.3Custodian Property Income REIT Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Property stock Custodian Property Income REIT (LSE:CREI) is also vulnerable to higher interest rates persisting in 2025.

In this case, unfavourable Bank of England policy could depress its net asset values (NAVs) while keeping borrowing costs above recent norms. Yet like Springfield Properties, I think this threat may be baked into the real estate investment trust’s (REIT) low share price.

At 78.5p per share, Custodian trades at a 18.6% discount to its estimates NAV per share of 96.4p.

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There are other reasons why, as a value investor, I’m a big fan of the trust today. At 7.8% for this financial year (to May 2025), its dividend yield is more than double the 3.6% average for FTSE 100 shares, for instance.

This in large part reflects Custodian’s classification as a REIT. In exchange for tax perks, these UK stocks must distribute a minimum of 90% of their annual profits from their rental operations by way of dividends.

I like this UK share because of its broad diversification which helps to reduce risk. The 152 properties on its books are spread across multiple sectors including office, retail and industrial. Furthermore, it enjoys reliable rental income, thanks to its tenants being tied down on multi-year contracts.

These qualities allow Custodian to provide healthy dividends across the economic cycle. I think it’s worth serious consideration today.

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Custodian Property Income REIT 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.

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