3 UK shares I’d buy in May

Some UK shares trading at discount prices may never recover, but G A Chester reckons these three stocks are genuine bargain buys.

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Many UK shares are still on offer at big discounts to their levels of just a few months ago. Some may never return to their former heights, but others may be among the best investments buyers today will ever make.

Certainly, there are a number of big fallers that remain on my ‘sell’ list. Equally, I think there are plenty of genuine bargains around. Here, I want to tell you about three UK shares I believe could be highly profitable for anyone investing right now.

The 3 UK shares I’d buy

Pet products and vets chain Pets at Home (LSE: PETS), international educational publisher Pearson (LSE: PSON), and platinum group metals (PGMs) producer Sylvania Platinum (LSE: SLP) all still trade at attractive discounts to their pre-market-crash highs of earlier this year.

At a share price of 252p, mid-cap FTSE 250-listed PETS is 20% lower. Blue-chip FTSE 100 stock PSON, at 452p, is down 30%. And AIM-listed small-cap SLP, at 41.5p, is at a discount of 34%.

Top dog

Pets at Home recently reported a strong end to its financial year ended 25 March. According to the latest company-compiled consensus, we can expect earnings per share (EPS) of 15.2p for the year. At the current share price, this gives a price-to-earnings (P/E) ratio of 16.6. The analysts also forecast a 7.5p dividend, giving a prospective yield of 3%.

Veterinary surgeries and pet shops are on the government’s list of retailers permitted to remain open during the current lockdown. As the UK’s leading pet care business, serving its existing customers well during this difficult time, and attracting new customers to boot, long-term growth looks very much on the cards. In my book, this is one of the best UK shares in the speciality retail space.

Re-rating prospect

Pearson is another company I expect to enjoy a long-term benefit from new customer acquisition due to the Covid-19 disruption. While the group’s testing and assessment businesses are currently negatively impacted, it has reported a significant uplift in the use of its digital products and services, and rapidly growing interest in its Global Online Learning business.

I calculate Pearson would have been capable of generating EPS of 42p this year in the absence of the pandemic. This would give a P/E of 10.8 at the current share price. Meanwhile, a twice-covered dividend of 21p would give a yield of 4.6%. In a normalised, post-pandemic world, I’d expect both earnings growth and a significant re-rating of the P/E.

One of my favourite small-cap UK shares

Small mining and oil companies on London’s junior AIM market don’t have a great reputation for delivering value for investors. However, Sylvania Platinum has built a record of strong performance in recent years. This is founded on its low-cost and low-risk extraction of PGMs from chrome tailings in South Africa’s Bushveld Igneous Complex.

It delivered EPS of $0.1236 (9.9p) for the trailing 12 months ended 31 December. At the current share price, the P/E is just 4.2. Mining operations in South Africa are set to restart after a government-ordered five-week lockdown. SLP remains one of my favourite small-cap UK shares. Its cash generation has funded not only investment in the business, but also share buy-backs and dividends in recent years. The running yield is 1.9% on the latest $0.01 (0.78p) payout.

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.

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Pearson. 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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