Global stock markets remain volatile, keeping investors on tenterhooks as the new ISA year begins. But I’m not worried. Over time, share prices tend to recover strongly from bouts of choppiness. In the meantime, confident investors can nip in and grab some bargains.
With Stocks and Shares ISA users having a fresh £20,000 contribution limit to exploit for tax-free gains, here are four of my favourite cheap shares to consider.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Taylor Wimpey
Taylor Wimpey‘s shares have dropped 14% over the last month. As a consequence, its price-to-book (P/B) ratio has toppled to 0.9.
At below 1, the builder trades at a discount to its balance sheet assets. This figure’s also below the 10-year average of 1.4.
The Iran War has created fresh and significant threats for housebuilders. Interest rates are tipped to rise instead of fall, putting buyer affordability under pressure. But is this now baked into the valuations of these stocks? In the case of Taylor Wimpey, I think so.
Over time, I expect the FTSE 250 firm to recover strongly, driving by the rising housing needs of Britain’s soaring population.
ConvaTec
ConvaTec manufactures medical products like stoma bags and wound dressings, demand for which remains largely unaffected during downturns. So why has its share price dropped 9% during the month?
It comes down to market worries over higher transport and manufacturing costs as oil prices increase. Supply chain disruptions and their effect on raw material prices is another emerging problem. But at current prices, I believe the FTSE 100 firm’s worth a close look.
Its price-to-earnings growth (PEG) ratio is 0.3. Again, any reading below 1 is considered bargain-basement territory. I like ConvaTec’s leading positions in fast-growing markets, and think this will drive long-term earnings growth.
Babcock International
Babcock International (LSE:BAB) shares are down 7% over the last month. Not even defence stocks like this have been spared the broader stock market rout.
However, this isn’t because conditions have significantly worsened in the face of the Iran War. Indeed, defence contractors like this stand to gain from increased geopolitical uncertainty. They face increased costs and potential supply issues, but the outlook remains strong for them.
To my mind, Babcock stock has been a victim of its own recent success. The shares surged 95% in value over the past year, leaving the stock vulnerable to profit taking as investor nervousness has crept in.
I see this as a great dip-buying opportunity to think about. With a price-to-earnings (P/E) ratio of 22.2 times, the FTSE 100 firm’s still one of the defence industry’s cheapest stocks. I expect it to rebound in value as global weapons spending steadily climbs.
Safestore
Safestore shares have dropped 13% over a one-month horizon, reflecting worries over consumer spending as inflationary pressures increase. The self-storage company now offers all-round value.
The real estate investment trust (REIT’s) now trading on P/B and PEG ratios of 0.2 and 0.6 respectively. Dividend investors also have a lot to shout about, the dividend yield rising to above 5%.
I’m optimistic factors like steady expansion and limited industry supply will see Safestore shares rebound from current levels.
