I think there are several dirt-cheap UK shares on the market today that could be a good fit for my portfolio. As such, I’ve recently been taking a closer look at these investments and I’ve been able to whittle the selection down to just three equities.
UK shares on offer
The first company is Imperial Brands (LSE: IMB). As a tobacco business, this enterprise might not be suitable for all investors. Further, over the past few years, the group has really failed to live up to both expectations and sales as profits stagnated. There’s a chance this trend could continue as we advance.
This uncertainty has pushed investors away from the business. However, I think it could be an opportunity. At the time of writing, the stock offers a dividend yield of just over 9%. It also trades at a mid-single-digit price-to-earnings (P/E) ratio. In fact, it’s one of the cheapest stocks in the FTSE 100 on this metric.
As such, I think the company’s valuation more than offsets the risk of owning the stock. This is why I’d buy the investment for my portfolio of cheap UK shares today.
Imperial Brands is one of the largest listed companies in the country. At the other end of the spectrum, Pendragon (LSE: PDG) has a market capitalisation of just £233m.
Shares in this automotive retailer have been under pressure for several years. It’s easy to understand why. The company’s revenue has declined from £4.5bn in 2015 to £2.8bn for 2020. However, it’s projected to recover to around £3.5bn by 2022.
I think investors are worried that the business may continue to shrink. That’s why the stock’s been under pressure. Of course, while there’s a good chance this will be the case, past performance should never be used to guide future potential.
And right now, I think the company’s valuation more than makes up for this uncertainty. The stock is trading at a forward P/E of 6.5. Despite the company’s challenges, I think this valuation is attractive. This is why I’d buy Pendragon for my basket of UK shares.
As rising demand for residential property has sent prices skyrocketing, the market for commercial property is entirely different. Commercial property values remain depressed. That’s why shares in Newriver REIT (LSE: NRR) continue to trade around 55% below their year-end 2019 level.
As there’s a strong possibility commercial property values may never recover to their pre-crisis highs, shares in Newriver may remain depressed for some time.
However, although the stock is currently selling at a discount to book value at 40%, it’s been selling properties at their book value. This suggests the market is far too pessimistic about the company’s prospects. I think there could be an opportunity here as a result.
That said, like other UK shares, the company may suffer significantly if there’s another lockdown. This would once again inflict yet more pain on the commercial property market.
Still, even after considering this risk, I think Newriver’s valuation is too good to pass up. That’s why this is another stock I’d buy.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands and Pendragon. 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.