The recovery from this year’s earlier stock market crash has been a slow process for most shares. Now even US tech shares are falling. Closer to home, I think the crash means there are UK shares that are very cheap.
Lagging behind its rivals but with potential
One is the big pharma group GlaxoSmithKline (LSE: GSK), which is involved in finding a vaccine for Covid-19. For me that’s not the reason to invest though. I find the possibility of a R&D-led turnaround, and the potential that has to make GlaxoSmithKline a high-yielding, dividend growth share, to be very appealing.
Progress towards on path has been slower than some may like. Rival AstraZeneca is much further ahead. But under CEO Emma Walmsley, it’s progressing. The group will spin out its consumer healthcare business within the next three years. It has also spent money on acquiring TESARO, for example, to beef up its oncology portfolio.
I believe for long-term investors, if Glaxo can come anywhere close to replicating AstraZeneca’s R&D success, then the shares are far too cheap. AstraZeneca has a trailing price-to-earnings multiple of around 100, putting into perspective just how cheap Glaxo shares are.
The shares are cheaper even now, after falling sharply recently. They trade on a P/E of under 12 which to me represents good value compared to other pharma companies and the market more generally.
A cheap share hit hard by the stock market crash
Barratt Developments (LSE: BDEV) could face some short-term pressures from regulatory action concerning leaseholds. It’s unclear as yet what action that could lead to, although the issue itself isn’t particularly new.
More broadly the government has been supporting the sector. In addition to the Stamp Duty cut, Help to Buy is still supporting sales and there are rumours it could be extended even further.
Barratt shares were cheap even before the pandemic because of Brexit and probably because of the possible ending of Help to Buy in 2021. Now the shares are even cheaper as the pandemic closed down the industry earlier this year. So the housebuilders are still playing catchup. They have mostly still to reintroduce their dividends which were cut in response to Covid-19.
I think the shares are a potentially profitable investment because of their cheapness – they trade on a P/E of 14 – and the potential for the dividend to be reintroduced. Rival Persimmon has already announced the resumption of payments, albeit at a lower rate. Then thirdly, the high levels of cash held by Barratt and its rivals will see them through this period of lower sales.
When I look at GlaxoSmithKline and Barratt Developments, I see two shares that are great value after the stock market crash. To me they are too cheap to ignore, and could make investors money in the future both from share price growth and from dividends.
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Andy Ross owns shares in AstraZeneca and Persimmon. The Motley Fool UK has recommended GlaxoSmithKline. 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.