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Looking for bargain shares? I’d buy these top AIM stocks in an ISA

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Eagle-eyed bargain hunters might have been paying attention to Premier Foods recently. The food manufacturer trades on a forward price-to-earnings (P/E) ratio of barely above 5 times. It’s a reading that I believe fails to reflect the importance of its defensive operations in what could prove a turbulent decade for the global economy.

It’s also a reading that doesn’t reflect the extra security offered by Premier Foods’ titanic brands. FTSE 100 company Unilever has historically traded at a premium to most other UK blue-chips owing to the strength of popular food brands like Magnum ice cream, Marmite spread and Hellmann’s mayonnaise.

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Beloved labels like these don’t tend to fall out of favour with consumers whatever the broader retail landscape’s like. And it’s a phenomenon that Premier Foods, through its brands like Mr Kipling, Cadbury, Oxo and Homepride shares. Yet it’s not a quality that has boosted the value of Premier Foods. Sure, it might lack the scale and the global pulling power of Unilever’s goods. But this AIM share remains too cheap by half, in my opinion.

BIG dividends

Mears Group is another AIM stock worthy of serious glances from value chasers. Mears doesn’t just change hands on a forward P/E ratio of 8 times. The business — which provides social care services, as well as housing maintenance services for housing associations and housing management — also carries a bumper 5.2% yield at current prices.

It’s a bargain share whose essential operations will allow it to largely weather the upcoming storm facing the UK economy. In fact, it stands to benefit from growing demand for social housing and rising government investment here. Its own housebuilding operations will benefit from a massive shortage of private homes too.

And to top things off, the UK’s rapidly-ageing population means demand for social care services should keep on expanding as well. This is a share that should thrive over the next decade and beyond.

Bargain? Or investment trap?

I’d certainly rather buy Mears Group than NewRiver REIT (LSE: NRR) This is even though the property giant’s valuations appear more compelling than those of the aforementioned share. At current bargain prices, it carries a P/E ratio closer to 7 times for the fiscal year to March 2021. It sports a whopping 6% dividend yield too.

Such a low earnings multiple reflects the huge near-term risks facing Britain’s physical retailers. And by extension, the massive profits problems being experienced by owners and operators of property assets like NewRiver. This AIM-quoted business, like its peers, has also had problems collecting rents. As of the end of March, it had received just 60% of rents due for the corresponding quarter.

Lockdown measures might be being easing. But Britain’s retail-exposed companies like NewRiver shouldn’t expect trading conditions to improve significantly. A recent survey from GfK reveals that consumer confidence is now at its lowest for more than a decade. I’m not tipping NewRiver to bounce back strongly beyond the medium term either, with the steady growth of e-commerce casting a gigantic shadow. I’d avoid this share at all costs.

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Royston Wild owns shares of Unilever. The Motley Fool UK owns shares of and has recommended Unilever. 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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