This week’s been grim for the London stock market. Swathes of quality UK stocks have plunged in value, as worries over ‘Trump tariffs’ and retaliatory action from the US’s major trade partners has gained traction.
The potential impact on the global economy and, by extension, on corporate earnings worldwide, could be considerable. But I don’t think this is cause for investors to ‘sell the farm’ in a state of panic.
Personally speaking, I plan to fill my boots with bargain shares if stock markets correct. To borrow one of Warren Buffett‘s favourite strategies, buying great stocks during a firesale can supercharge the long-term returns I enjoy.
Here are two cheap shares that have already grabbed my attention. I think they’re worth serious consideration following recent price falls.
B&M
Discount retailer B&M European Value Retail‘s (LSE:BME) a share that’s not for the faint of heart.
It slumped last month after slashing its profit guidance for the 12 months to February. This wasn’t the first such cut, with former breakneck sales growth now slowing to a crawl. It’s also prompted the resignation of its chief executive Alex Russo.
B&M shares continue to fall at the start of March. But as a long-term investor, I’m considering whether now could be a good time to open a position.
Its forward price-to-earnings (P/E) ratio is now just 7.5 times. That’s a mile below the company’s five-year average in the early-to-mid teens.
Not even cut-price retailers like this are immune from current weakness in consumer spending. But when conditions eventually recover, I think the former FTSE 100 share could spring back to life. Analysts think the value retail channel has further room for growth, and B&M plans to keep expanding to capitalise on this.
More planned store openings in the UK and France could see the number of B&M-badged stores on these shores rise 55% from current levels, to 1,200.
Topps Tiles
Tile retailer Topps Tiles (LSE:TPT) is also in freefall right now. Like B&M, its chief executive (Rob Parker) plans to head for the exit, causing some considerable uncertainty.
Sales have strengthened more recently (up 4.6% in the December quarter), but dangers remain given how weak consumer sentiment remains. A recent sharp contraction in the construction industry is also hugely alarming.
Yet the cheapness of Topps’ shares has turned my head. Its forward P/E ratio is 7.8 times, while its corresponding price-to-earnings growth (PEG) multiple sits at 0.1.
Any sub-1 reading suggests a share is undervalued. Topps clearly sits well below this threshold.
I think the penny stock could rebound sharply for several reasons. As undisputed market leader, it’s well placed to capitalise on any upcoming housebuilding boom (the government plans to build 300,000 new homes each year to 2029).
I also think Topps’ plans to boost its online channel and expand product ranges could pay off substantially. The company thinks this will improve sales by £100m over the medium term, to £350m, and drive profit margins to 8-10%.
