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£3k to invest in the FTSE 100? I’d buy these 2 cheap UK shares in an ISA today

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The FTSE 100’s recent decline means there’s a wide range of cheap UK shares available to buy today. While they could experience difficult operating conditions in the short run that further disrupt their share price performances, over the long run they may offer recovery potential as the economy improves.

With that in mind, here are two large-cap shares that appear to offer wide margins of safety. They could be worth buying in an ISA with £3k, or any other amount, today.

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An undervalued stock relative to cheap UK shares

HSBC’s (LSE: HSBA) 50% stock price fall in 2020 means that it appears to offer good value for money relative to other cheap UK shares. The bank’s shares now trade on a forward price-to-earnings (P/E) ratio of around 9. This suggests that they offer a wide margin of safety.

That may be necessary in the short run, as the company faces a challenging set of operating conditions. Global economic growth remains uncertain, while low interest rates across much of the world economy could limit profit growth in the coming months.

In response, HSBC is cutting costs through measures such as headcount reduction and reorganising its operating divisions. This could strengthen its financial outlook. And its focus on major Asian economies may mean it has more robust prospects versus other FTSE 100-listed banks that are focused on Europe.

As such, now could be the right time to buy a slice of the business within a diversified portfolio of cheap UK shares. It could offer recovery potential as the world economic outlook improves.

A recovering FTSE 100 share with room to grow

Berkeley Group (LSE: BKG) could be another buying opportunity among cheap UK shares. The FTSE 100 housebuilder’s shares have moved higher in recent months, due to an improving outlook for the housing market. However, they continue to trade at a relatively attractive price. For example, they have a forward P/E ratio of 12.8.

The UK still has a chronic housing shortage. With low interest rates expected to remain in place over the long run and confidence in the housing market returning, the company may enjoy improving operating conditions. Its net cash pile of over £1bn suggests that it has the financial means to survive if economic conditions worsen. Meanwhile, its portfolio of large regeneration developments could lead to a relatively robust profit outlook in the coming years.

Berkeley’s generous shareholder returns programme means that it could yield up to 4.5%, depending on whether it focuses on dividends or share buybacks. Therefore, it may have relative appeal at a time when there are many cheap UK shares on offer. This could help it to outperform the FTSE 100, and make a positive impact on your ISA’s performance in the long run.

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Peter Stephens owns shares of Berkeley Group Holdings and HSBC Holdings. The Motley Fool UK has recommended HSBC Holdings. 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.

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