The FTSE 100 is on the road to recovery from the stock market crash, but so far, the journey has been slow. I believe that this leaves an opportunity for the savvy investor to profit because some UK shares are still trading at bargain prices. Of those stocks, the ones I’d buy are Bellway (LSE: BWY) and Whitbread (LSE: WTB).
Bellway is a housebuilding company, which explains its c.30% fall in value year to date as house sales evaporated in the past few months. Encouragingly, the share price has improved since the initial 50% drop in March.
Some investors may be hesitant to buy a UK share that has started rising back up to its pre-Covid price. However, I believe this is a positive sign. By waiting for this price rise, the stock has demonstrated some optimism, but it has only recovered slightly.
Bellway offers great value based on a variety of metrics, and is a solid business. Despite predictions of many bankruptcies in value stocks, Bellway should avoid this fate. It has only £20 million total debt and £25 million in cash, which should allow the company to survive even if a second lockdown occurs. Bellway also demonstrated confidence and strength last month when the company refused any form of government aid.
Bellway is one of the UK shares that I would buy because of the strength of its balance sheet and its bargain price. Persimmon, a competitor, also recently issued encouraging forward guidance. This is good news for the whole industry. As the housing market inevitably restarts with momentum, cheap stocks like Bellway should soar. That is why it’s one of the UK shares I would buy now at this bargain price.
Whitbread is my second UK share pick. The company owns the Premier Inn chain of hotels, and other hospitality businesses. In recent weeks Whitbread has built a war chest of £1 billion by raising capital. This cash will ensure the survival of the brand and may even create opportunities for expansion according to the CEO. The company has also noted a return of bookings in the UK, which is a very positive sign. Although some areas like London are still lacking in bookings, this should return slowly.
Whitbread’s stock is still down over 45% for the year, making it a bargain UK share. To be clear, the stock will likely have a rough year. Travel will probably not resume quick enough to allow Whitbread to return to profitability by year-end. However, in the long run, I believe that travel will return close to peak levels and Whitbread will profit. There is little evidence to suggest that travel will remain at current levels. I also believe that a poor 2020 is now priced into the stock, so the downside risk is low.
Both of these UK shares are not without risk, but I think that the reward is worth it. The cash in each company should prevent bankruptcies and both have solid business models that should excel going forward. As an investor, one must always remember, to the knowledgeable and thorough risk-taker go the spoils.
Charles Heighton has no position in any shares mentioned. 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.