Buying bargain UK shares may not be a priority for many investors at the present time. The recent declines of the FTSE 100 and FTSE 250 may mean that holding lower-risk assets is of greater importance to them.
However, over the long run, purchasing undervalued companies today could lead to high returns that improve your financial prospects.
With that in mind, here are two shares that have fallen heavily since the start of the year. Although they face short-term uncertainty, now could be an opportune time to buy them ahead of a potential recovery.
An undervalued airline among UK shares?
While many UK shares have declined heavily this year, among the biggest fallers have been airlines such as easyJet (LSE: EZJ). Its share price has declined by over 50% since the start of the year, with a grounding of the vast majority of its fleet causing sales prospects for the business to deteriorate.
As a result, the company has sought to improve its financial position. For example, it recently conducted a placing, and has been able to reduce its operating cost cash burn by 70% over recent months. It has also deferred aircraft deliveries where possible as part of a strategy to reduce capital expenditure to strengthen its financial position.
Clearly, easyJet’s share price could come under further pressure in the short run if the economic outlook deteriorates further. However, with a strong position in many key markets and its budget focus, it could experience a recovery over the long run as the prospects for the wider economy improve.
As such, buying a slice of it today in a diversified portfolio of UK shares while it appears to offer a wide margin of safety could prove to be a profitable move over the coming years.
An uncertain future?
Another major faller among UK shares in 2020 has been Rolls-Royce (LSE: RR). Its stock price is down by 60% since the start of the year, with weaker demand for its products being a key factor in its decline.
However, the business recently announced that it is making progress in becoming more efficient. For example, it plans to reduce costs by up to £1bn in 2020, with £300m of that figure achieved in the first half of the year. Furthermore, the company has made progress on its Trent 1000 engine fixes, which have acted as a drag on its performance over recent years. And, with improved liquidity, it appears to be in a stronger position to survive a turbulent period for the civil aviation sector.
Clearly, Rolls-Royce could prove to be a riskier and more volatile option compared to other UK shares due to continued weakness in its end markets. However, with its shares appearing to factor in many of the risks it faces, and the company having a seemingly sound strategy, now could be the right time to buy a slice of the business for the long term.
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Peter Stephens owns shares of easyJet and Rolls-Royce. The Motley Fool UK has no position in any of the shares mentioned. 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.