Following this year’s stock market crash, many investors might think it sensible to avoid UK shares. However, I think that could be the wrong course of action.
Indeed, plenty of research shows that buying shares when they’re trading at depressed levels is the best way to generate large returns in the long term.
With that in mind, I’ve been buying UK shares for my portfolio over the past few weeks. Today, I’m going to highlight the stocks I think have the potential to produce large returns over the next few years.
Stock market crash bargains
In my portfolio, there are two buckets of UK shares. There are those stocks I intend to hold forever and, alongside these core positions, I own several shorter-term holdings. These shorter-term positions are stocks I’ve been buying at low levels over the past few months.
One of these companies is asset management group M&G Plc. Spun off from its parent business last year, M&G has struggled to attract investor attention over the past 12 months.
I’m not sure why investors have been giving the business such a wide berth. Its most recent trading update showed that the group’s fundamentals are strong, assets under management are steady, and the leadership is plotting takeovers to improve growth. As the stock trades at a forward price-to-earnings (P/E) ratio of 6.7, I think it’s a fantastic bargain at present levels.
Another business I’ve been buying to take advantage of its stock market crash valuation is Landsec. This real estate investment trust is trading at a discount of around 40% to the value of its assets. I know the value of commercial property has been hit hard in 2020, but a 40% discount seems too steep.
Most of the firm’s real estate portfolio is in London, and initial indications suggest the capital’s property market is still as attractive as it always was to investors. That’s why I think it could be worth buying Landsec at current levels as part of a basket of cheap UK shares.
Value and quality
One business that fits into both of my buckets is British American Tobacco. This business is the second-largest tobacco company in the world. Even though cigarette sales across the globe have been falling for decades, British American’s profits have proved resilient. Still, this hasn’t stopped investors selling the stock in 2020 following the stock market crash.
After recent declines, the shares both look cheap, changing hands at a forward P/E of 7.6 and offer a market-beating dividend yield of 8.5%. My research tells me this payout should be safe for the next few years at least. That’s why I believe one should see handsome profits from this income champion when it’s owned as part of a diversified portfolio of UK shares.
