Investor confidence still remains pretty shaky in the aftermath of the 2020 stock market crash. Recent sharp rises in global stocks have even prompted fears over an imminent second major sell-off. However, sentiment towards UK shares still remains relatively weak, especially in comparison to stocks elsewhere in the world. With that in mind, I think there’s still a good opportunity to pick up some cheap UK shares. Hold them for the long term, and you could even boost your chances of building a six-figure portfolio.
Currently, I have my eye on a handful of British stocks that appear too cheap to ignore. Today I want to talk about two of them in particular.
Cheap UK shares to look out for
First up is one of the world’s leading packaging companies, Smurfit Kappa Group (LSE: SKG). Over the last 10 years, the shares have netted around a 420% return, massively outperforming the FTSE 100 index. While we’re yet to hear of the company’s trading performance over the last few months, I have a sneaky feeling it may be positive.
The explosion in e-commerce activity in the wake of the coronavirus pandemic sent demand for packaging products through the roof. Results from other packaging companies are testament to this. Therefore, increased business activity in this sector is something Smurfit Kappa was always well-positioned to capitalise on. Factor-in the company’s strong market position, as well as industry-leading innovation, and a P/E ratio of 14.7 is amply justified, in my view.
Secondly, I like the look of shares in the diversified engineering company Smiths Group (LSE: SMIN). Despite a resilient first-half performance, the firm has struggled as a result of the pandemic, with operations across multiple business areas slowing down substantially. Consequently, the company is taking the necessary, albeit painful, steps to reduce costs and free up cash. The FTSE 100 engineer’s restructuring programme intends to offset costs with large savings in 2021, with the full benefit feeding through the year after.
Overall, the sheer diversity of the products and services provided by Smiths should act as a buffer against total ruin. The company manufactures a wide range of specialist goods from electronics to medical equipment. Provided business accelerates again in a post-pandemic world, I see a P/E ratio of 20.6 as a price well worth paying for a company that looks poised to recover strongly in the long run.
Building a six-figure portfolio
Ultimately, holding these two stocks alongside a handful of diversified UK shares in an ISA could immensely boost your prospects of building serious long-term wealth. Why in an ISA? Well, that way you get to hold on to more of your gains due to the tax-wrapper effect.
For example, let’s say you invest £500 a month and manage to achieve an annual return of 8%. After 35 years, you’d have an investment pot worth £1,078,202! With that in mind, I’d buy cheap UK shares today in order to kickstart the process of compounding returns.
Matthew Dumigan has no position in any of the 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.