The Motley Fool

3 quality cheap stocks to buy now

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Compass pointing towards 'best price'
Image source: Getty Images.

I’m seeing a number of quality cheap stocks I’d like to buy now. This is despite the FTSE 100 being up 10.2% for the year to date and 17.7% on a 12-month view.

Economically sensitive stocks, like Lloyds, have thrived on generally rising optimism in 2021. By contrast, some of the index’s quality ‘defensive’ stocks have underperformed. I think this makes it a good time for me to invest in them.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

My 3 quality cheap stocks to buy now

British American Tobacco (LSE: BATS), silver and gold miner Fresnillo (LSE: FRES) and household goods group Reckitt (LSE: RKT) are strong businesses, in my view. But demand for their shares has been weak for a while. The table below shows their performances relative to the FTSE 100 for the year to date and over the last 12 months.

 

Year to date (%)

12 months (%)

BATS

-7.8

-22.8

FRES

-39.3

-31.2

RKT

-11.9

-32.7

As you can see, BATS, FRES and RKT have seriously underperformed the Footsie over both periods. However, I reckon going against the crowd and buying these quality cheap stocks today could serve me well in the long term.

Friendless Fresnillo

Fresnillo is the world’s largest primary silver producer and Mexico’s second-largest gold producer. It has a long history of mining, and a proven track record of mine development and reserve replacement.

It’s been the worst performer of the FTSE 100 so far in 2021. This has left the shares trading at 14.1 times forecast earnings with a prospective dividend yield of 3.3%. I think this represents good value. However, like most London-listed miners, Fresnillo operates in a country with above-average political risk.

To mitigate risk, I’d feel inclined to split my investment, and buy fellow gold and silver miner Polymetal International alongside Fresnillo. Polymetal, whose mines are in Russia and Kazakhstan, has also underperformed the Footsie this year.

Rejected Reckitt

Geographical diversification isn’t an issue with out-of-favour Reckitt. It’s a multinational business, selling category-leading health, hygiene and nutrition products in 200 countries. Its world No. 1 brands include Durex, Calgon and Nutramigen.

After the recent weakness in its shares, Reckitt’s priced at 21.2 times forecast earnings with a prospective dividend yield of 2.7%. This is a richer rating than Fresnillo’s, but fast-moving consumer goods (FMCG) companies, like Reckitt, typically trade on earnings multiples in the 20s — and in the mid-to-high 20s when market sentiment is more favourable than today.

In the modern digital world of social media influencers and so on, barriers to building new brands are lower than they once were. Nevertheless, I feel Reckitt has the strength to handle competition and is a quality cheap stock for me to buy now.

Blackballed BATS

British American Tobacco is the world’s most international tobacco group, operating in more countries than any other. I mentioned that FMCG companies are typically highly rated by the market. Tobacco companies are currently exceptions to the rule. Unloved BATS trades at just 8.5 times forecast earnings with a gigantic prospective yield of 7.8%.

I think many market participants see rising health awareness and regulatory risk as fatal to the investment case. However, obituaries for tobacco companies have been written for many years. Reports of their death have so far proved to be greatly exaggerated.

I think the risks and challenges facing BATS are more than offset by the bargain-basement earnings multiple and terrific yield. As such, I’m looking at it as another quality cheap stock to buy now.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story.

In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended British American Tobacco and Fresnillo. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.