There’s no shortage of cheap UK shares after this year’s stock market crash. So today, I’m looking at two strong FTSE 100 businesses currently trading at knockdown prices.
If you’re buying with a long-term horizon of 10 years or more, I reckon these stocks could help you build a large financial nest egg.
Cheap UK shares to buy
Shares in blue-chip dividend champion British American Tobacco (LSE: BATS) have slumped in recent months. Concern about the company’s long-term outlook, as well as a declining number of smokers around the world, has hurt investor sentiment towards the business.
However, the group’s underlying fundamental performance remains strong. This is why the company is on my radar as one of the best cheap UK shares to buy right now.
The company’s latest trading update showed a 3.5% increase in adjusted profit before tax to £4.9bn. This was above analyst expectations. Overall revenues in the first half of the year increased by nearly 1%.
The firm’s strong H1 performance puts it well on the way to meeting full-year growth expectations. As such, I reckon now could be an excellent time to buy the stock as part of a diversified portfolio of cheap UK shares.
Right now, shares in the company are dealing at a forward price-to-earnings (P/E) multiple of just 7.7. That’s below the long-term average of around 16. In addition, shares in British American Tobacco offer a dividend yield of 8.5%. I think these numbers show the stock provides a wide margin of safety at current levels.
Mining giant Rio Tinto (LSE: RIO) is also on my radar. There are several reasons why I think this company could be a great addition to a basket of cheap UK shares.
For a start, the company is the largest producer of iron ore in the world. This gives it a definite competitive advantage and the most substantial profit margins in the mining sector. The company also has a strong balance sheet. Rio’s healthy cash generation has helped it reduce debt and invest in the business at the same time.
It’s also returned a lot of cash to investors over the past few years. However, despite its performance since 2015, investor sentiment has turned against the business recently. Like many cheap UK shares, investors are worried about the impact the coronavirus crisis might have on the company’s bottom line.
So far, the effect has been minimal. Therefore, I think now could be an excellent time to take advantage of depressed investor sentiment and buy the stock as part of a diversified portfolio.
It’s projected to pay investors a market-beating dividend yield of 6%. On top of this, the stock appears to offer a margin of safety as it’s trading 30% below its long-term average P/E multiple of around 15.
Rupert Hargreaves owns shares in British American Tobacco. 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.