Purchasing dirt-cheap British shares, and knowing I’ll own them for decades, strikes me as a fantastic method to develop long-term wealth. Right now, I think that many great British companies are trading for way below their true values. That being said, nobody knows where share prices will go next, especially in the near term. I might easily stock up on what I believe are bargain shares now, only to discover that they’re much cheaper a year from now. This is why, when I buy shares, I fully intend to own them for at least 10 years.

I’m buying dirt-cheap British shares today

History shows stock markets have beaten practically every other investment over the long run. If I can somehow buy shares while they’re cheap rather than costly, they’ll do even better. I think that recent market downturns and the ongoing effects of the Covid-19 pandemic have created some fantastic buying opportunities. Some company shares are at their lowest prices in over a decade and I’m eager to scoop them up while I can. For example, Rolls-Royce is currently trading at 94.16p, its lowest since 2005. 

I must keep in mind that just because a stock is cheap and British, doesn’t mean it’s automatically a good buy. There’s usually a solid reason prices have fallen. Sales may be declining. The costs of doing business may be increasing. The competition could be too fierce, and smaller, more agile competitors may be stealing market share. The company’s management plan might have gone off the rails or consumers may have lost interest in its product.

However, there are a few key metrics I’m keeping an eye out for that could indicate when a company’s stock is selling for far less than it ought to be. These indicators can be the P/E ratio, the discounted cash flow or even the amount of investment pouring into the firm to help develop new products.

The key is to hold for the long term

Before buying British shares that appear to be dirt-cheap, I’ll examine them for all of these risks. I prefer organisations that have experienced minor setbacks and appear to be on the mend. In some circumstances, the setback was beyond their control (the pandemic is a good example). In other cases, the market may have reacted too strongly to a single set of disappointing data. Their current prices may not reflect their future possibilities in this situation.

To keep with the Rolls-Royce example, the aeronautics company took a serious hit to revenue in 2020, while operating costs also went up. But after careful restructuring, it was able to come back to profitability in 2021. This restructuring could now go on to increase its profit margins for years to come. All I need to do is be patient.

Of course, the biggest risk is that the firm will never recover. Sometimes, no amount of restructuring can save a company. Just ask Toys ‘R’ Us. To counter this, I would establish a well-balanced portfolio of at least a dozen equities to spread my risk. As global stock market volatility increases, there should be plenty of cheap British shares to choose from.

The post I’d buy dirt-cheap British shares today and hold them for a decade appeared first on The Motley Fool UK.

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James Reynolds has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

The stock was trading for more than 600p at the beginning of January. But the price sank to roughly 300p in the middle of February as tensions between the countries grew. Then, when Russia finally invaded Ukraine two weeks ago, the share price plummeted to around 50p.

Currently trading at around 80p (down more than 80% since the start of the year), is this mining giant too cheap to ignore?

Toxic association

Lots of shares are struggling right now. But it seems to me that Evraz’s stock is under extraordinary pressure. This could be because Roman Abramovich, the company’s major shareholder, is believed to be a close friend of Vladimir Putin. 

Russia also accounted for $5.5bn of the group’s total $14.1bn in revenues last year. It has a strong presence in the country and, like many steel companies, buys large quantities of raw materials there. Therefore, sanctions will hit Evraz disproportionately hard.

Even if the situation in Eastern Europe improves tomorrow, I doubt Evraz’s stock price will recover to its earlier heights. The war has damaged Russia’s image and many businesses may think twice before investing in the country again.

It’s not all bad news

Evraz is confronted with enormous obstacles, but there are some pieces of good news. For one, Evraz does not only operate in Russia. As previously stated, the area accounts for just around a third of the company’s sales. Asia, America, Africa, and Europe are home to the rest of the company’s businesses.

As far as we know, these enterprises are still operational and may be producing windfall profits as supply restrictions push up steel prices. This is something that investors should think about while evaluating a company. The corporation will have worth as long as these divisions continue to generate revenue for the group. But, because the situation is always changing, it is hard for me to quantify the worth of these procedures.

Share price outlook

In light of the events in Ukraine, I believe Evraz’s stock price will remain volatile for the foreseeable future. Companies with exposure to Eastern Europe are likely to stay unpopular with investors until we have more information on how the situation in the area will be resolved.

Nonetheless, if a solution to the crisis is found, the stock might skyrocket. If the uncertainty goes away, the company may be undervalued at its present levels.

Although the stock has potential in the best-case scenario, I will not add it to my portfolio. I believe there is now much too much uncertainty around the firm and the economy as a whole. I’m going to stay away from Evraz till things calm down.

The post Is the Evraz share price too cheap for me to ignore? appeared first on The Motley Fool UK.

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James Reynolds has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Here are three take-home messages I’ve spotlighted from his latest letter to shareholders. 

Running winners

The real Warren Buffett once quipped that his ideal holding period was ‘forever‘. While Smith hasn’t gone this far, he has frequently made it very clear that part of Fundsmith’s strategy is not to trade very often and run its winning picks.

He made this point again last month:” Someone once said that no one ever got poor by taking profits. This may be true but I doubt they got very rich by this approach either.“

As an illustration of his commitment to not jumping in and out of stocks on a whim, Smith still holds seven companies that were originally bought when the fund kicked off in 2010. That might not seem like many. However, his fund is highly-concentrated, only holding between 20 and 30 shares at any one time.

A quick check reveals that I’m a lot worse at running profits than Smith. Positively, I am getting better, having held Somero Enterprises, IG Group and Greggs for a few years now. I’ve no intention of selling up either!

Buy quality

Buffett famously bought into very cheap stocks early in his career and made a killing. That said, his investment strategy would later change to buying only the highest-quality companies he could find. These had some kind of ‘moat’, or competitive advantage, over rivals. This may take the form of a very strong brand or enormous marketing budget or control over distribution. Think Coca-Cola. 

Smith adopts a similar approach, name-checking Buffett in January’s letter. In his view, “the biggest problem with any investment in low-quality businesses is that on the whole, the return characteristics of businesses persist.” 

This is why Fundsmith’s leader vehemently refuses to temporarily invest in stocks that may benefit the most from the post-pandemic recovery in economic activity. So no IAG or easyJet for Smith.

Having owned one, two or seven real stinkers in my time, I’m now a fully signed-up member of ‘Team Quality’. In addition to my stake in Fundsmith Equity, I’ve been topping up my holding of Smithson — the small/mid-cap-focused investment trust that also adopts Smith’s strategy.  

Don’t obsess over price

Having highlighted the importance of buying good businesses, Smith then turns his attention to the issue of valuation. In his view, “highly rated does not equate to expensive any more than lowly rated equates to cheap.“

For me, this has links to Buffett’s suggestion that it is better to buy a great company at a reasonable price than the other way around. 

Not obsessing over the price I’m required to pay for a stock has taken me years of practice. I’ve lost count of the number of times I’ve waited for the prices of great stocks to ‘correct’ only for this to never happen. More often than not, a top growth company’s valuation has remained fairly constant while its share price has soared. 

However, I do think that I’m steadily getting better at it. In fact, there’s one FTSE 100 stock that I’d be very happy to buy right now, despite still being very highly rated. 

The post I’m listening to ‘Britain’s Warren Buffett’ and buying these stocks appeared first on The Motley Fool UK.

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Paul Summers owns shares in Fundsmith Equity, Smithson Investment Trust, Greggs, IG Group and Somero Enterprises, Inc. The Motley Fool UK has recommended Somero Enterprises, Inc. 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.

Again, there’s no guarantee any of the companies mentioned below will always be in a position to return cash to holders, hence the need to stay appropriately diversified.

Green dividends

Renewables Infrastructure Group (LSE: TRIG) is a highly attractive option for tackling rising prices, in my opinion. The £3bn-cap company is expected to return 6.85p per share to holders in the current year. That’s a yield of 5.1%. By comparison, the FTSE 250 index can only offer 2.1% in passive income at the moment.

Another reason this company stands out for me is that it’s not missed a chance to hike annual dividends since listing on the UK market. True, these increases have been small, but I’d take this over big hikes that then become unsustainable.

At just over 15 times earnings, TRIG shares aren’t cheap, relative to the industry in which the company operates. However, they still look reasonably priced compared to the market as a whole. And buying here will allow me to tap into the sustainable energy trend that is only likely to get more popular with investors in the future. 

As a source of stable income, TRIG definitely grabs my attention.

Down… but not out

I’ve been a stockholder in price comparison website Moneysupermarket.com (LSE: MONY) since last year. While I originally bought in for its recovery potential, the dividend stream is welcome in the interim as inflation ticks higher. The forecast yield for this year stands at a solid 6.7%. 

One thing worth highlighting with Moneysupermarket is that profits only just about cover the payout. This could mean the company is forced to reduce its cash returns if (and that’s a big if) trading doesn’t bounce back as expected in 2022. Personally, I’m of the opinion that it will, hence why I remain invested here. Of course, I could be utterly wrong, which is why I’m also continuing to spread my money into other parts of the market.

Based on a 31% jump in earnings per share in 2022, MONY stock changes hands for a P/E of just under 13. For such a quality stock, that still looks a steal to me! But then I would say that.

8.3% yield from this FTSE 250 stock

Jupiter Fund Management (LSE: JUP) is by far the largest dividend payer of the three discussed here. Analysts have it returning an inflation-beating 8.3% in 2022.  

Similar to other asset managers, Jupiter is unlikely to have benefited from the poor start to the year for markets. It will be interesting to see what CEO Andrew Formica has to say about the outlook later this month. Full-year numbers are revealed on 25 February.

I’m also conscious that the company is not exactly consistent when it comes to raising its cash returns to investors. This may continue in the future if Jupiter is forced to reduce its fees to compete with rivals. The huge popularity of passive funds is another headwind. 

However, it seems that quite a lot of negativity is already in the price. Down 21% in the last 12 months, Jupiter shares now trade on a little less than 10 times earnings. I’d buy.

The post 3 inflation-busting FTSE 250 dividend stocks to buy appeared first on The Motley Fool UK.

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Paul Summers owns shares in Moneysupermarket.com. The Motley Fool UK has recommended Jupiter Fund Management and Moneysupermarket.com. 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.

Lockdown beneficiary

In retrospect, the time to pick up stock in online casino and gaming operator 888 Holdings (LSE: 888) was just before Boris Johnson announced the first national lockdown. Back then, the share price was around 80p. A couple of months ago, 888 achieved a 52-week high of 494p. 

Unfortunately, I didn’t act on my own bullish call in 2020, due to the sheer number of attractively-priced options out there during the market crash. Even so, I’d still be prepared to buy now, especially as 888’s valuation has now fallen back below the 300p mark.  

Aside from general market skittishness, some old-fashioned profit-taking is probably behind this selling pressure. Some investors may have taken the 15% reduction in business-to-consumer betting revenue in Q3 as a sign that trading momentum is now slowing. A more likely catalyst, however, is the recent legal shake-up in the Netherlands that requires online betting firms to obtain a licence. In response, 888 has ceased to operate there — a decision that’s expected to hit profit by $10m. 

I’d snap up this cheap UK share

Since this is a temporary measure, I think the fall may be overdone. Shares in 888 now trade at just 14 times forecast FY22 earnings. That looks great value, considering 888’s agreement to buy William Hill’s non-US assets could put a rocket under profits in time. What’s more, the stock comes with a potential 12p per share dividend next year (or 4.1% yield at the current share price).

All this before we’ve even considered the increase in business 888 could see if there’s a fourth national lockdown.

Buy the dip?

Another cheap UK share I’m interested in buying would be commercial and domestic lighting firm Luceco (LSE: LUCE). Despite staging a brief comeback in November, shares in the mid-cap were back to 337p by last Friday. That’s a significant drop from the 52-week high of 513p it hit back in September. 

This fall leaves Luceco’s forecast P/E at a little under 16. This may not look like a screaming bargain initially. However, this number should never be looked at in isolation, especially if the company scores well on quality metrics.

While past performance is definitely no guide to the future, Luceco has long generated high returns on invested capital. It’s this, according to UK top fund managers like Terry Smith, that plays a significant role in great long-term returns. Luceco could therefore prove to be a steal at current levels.

I must emphasise the word could here. There is a chance that recent cost pressures may not peak in early 2022 as the company expects. The fact that less than half of the company is available to buy on the market (i.e. a low ‘free float’) may also mean the share price lurches rather than drifts lower.

Still, I’m not concerned with trying to time the market exactly. What’s more important to me is buying a decent business at a sane price and holding on. I remain bullish on Luceco.

The post I’d buy these cheap UK shares today appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Penny shares, by their very nature, look temptingly priced. It’s easy to imagine a stock multiplying in value over a short period of time if it can be snapped up for mere pocket change. Even so, I think it pays to be extra cautious when hunting for winners. Here are three companies that, based on traditional investing metrics, look good value to me. But are they really?

Renold 

I can currently buy shares in industrial chain supplier Renold (LSE: RNO) for just nine times earnings. That already looks a potential bargain given that the company’s customers are nicely diversified by sector and geography. However, this minnow also has a PEG (price/earnings-to-growth) ratio of 0.5. As a rule of thumb, anything at or below 1.0 tends to imply value based on that firm’s prospects. 

Recent results go some way to supporting this. Earlier this month, the company announced that it was continuing to see a recovery in revenues and orders following the pandemic. The latter rose 61.3% to almost £80m over the four months to the end of July. As such, RNO now predicts it will beat market expectations for full-year adjusted operating profit. 

This is not to say that an investment in this penny share is risk-free. The “much-lengthened supply chains” and “considerable raw material and transport cost inflation” mentioned in the last update could get worse before they get better. Even so, I reckon Renold is a cautious buy for my portfolio today.

Severfield

Severfield (LSE: SFR) produces about 300,000 tonnes of fabricated steelwork a year from its five UK sites and factory in India. This is eventually used in the construction of landmark buildings, stadiums, warehouses, hospitals and universities. London’s Shard and Wimbledon’s No.1 Court are examples. 

Right now, I can buy the shares for 11 times earnings. That compares favourably to valuations both within its industry and the market as a whole. The company also has a PEG ratio of just under 1.0. 

Then again, it’s worth me bearing in mind that demand for Severfield’s steel will clearly be linked to the overall health of the UK economy. It’s also worth noting that this has been a penny share for over nine years now. As such, I doubt this stock will fly anytime soon.

Still, it does offer a secure and decent dividend yield (3.7%). So, as a way of balancing out my more racy growth plays, Severfield appeals to me. 

Gem Diamonds

Diamond explorer and producer Gem Diamonds (LSE: GEMD) is a final penny share that, using traditional valuation measures, looks dirt cheap. It has a price-to-earnings (P/E) ratio of less than six for the current year. Other things I like are the net cash position and 3.8% dividend yield.

Then again, this low valuation isn’t a complete surprise. After all, any company in the mining sector has the potential to be highly volatile in price due to the cost and difficulty of extracting whatever metal or mineral it’s focused on. This is potentially compounded by where in the world drilling is taking place.

To be fair, GEMD digs in Botswana and Lesotho, which are considered to be generally safe. However, other risks include the growing popularity of synthetic diamonds among younger buyers.

So, while I like some of what I see here, I’m content to leave Gem Diamonds to those with stronger stomachs.

The post These 3 penny shares look dirt cheap. Should I buy? appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

With this in mind, here are three such shares from the FTSE 250 I’d add to my ISA portfolio today.

TI Fluid Systems

TI Fluid Systems (LSE: TIFS) is the go-to option for car manufacturers looking for components to move fluids around inside their vehicles. Its operations stretch over 28 countries, giving the company great geographical diversification. However, the chief reason it’s caught my eye is that it looks very attractively-priced for the growth on offer.  

Right now, I can pick up the stock for under 16 times earnings. That already looks pretty decent value, relative to the levels of some stocks in the FTSE 250. And the price-to-earnings growth (PEG) ratio for FY21 is just 0.3. As a general rule of thumb, anything at or below 1.0 on this metric suggests the market is undervaluing the company. 

Of course, numbers never tell the full story. A key risk with TIFS is that it could be impacted by the ongoing issues with supply chains currently dogging the automotive sector.

Another thing worth mentioning is the ‘free float’. A relatively low number of shares (as a percentage of total equity) currently trade on the market. Theoretically, this could make TIFS’ price more volatile than other mid-tier stocks.

As long as I can remain focused on the long term, however, this looks like a good investment for me.

Redrow

As a (mostly) growth-focused investor, I’ve long regarded housebuilders as more suitable for a wholly income-focused portfolio. Perhaps I’ve been overly cautious. After all, some companies in this sector look temptingly priced for the growth they offer.

One example from the FTSE 250 is Redrow (LSE: RDW). We’ve seen a post-lockdown housing boom, but its shares now trade on less than 10 times earnings. More importantly, a forward PEG ratio of 0.5 is also very low. 

Of course, a key question now is whether recent activity will now decline as more people return to the office, others get laid off, and government incentives end. In fact, there are signs this is already happening. 

Still, I’m encouraged by RDW’s most recent update. Back in July, it reflected on having a “very strong” order book. Its sales market also “remains robust“. This leads me to suspect that buying for my ISA now could still work out well. 

Coats

A final ISA buy is industrial threads and fasteners manufacturer Coats (LSE: COA). A world leader at what it does, the business also has great earnings diversification, supplying products to industries such as apparel, transportation and telecoms.

Once again however, it’s the valuation that appeals. Coats’ forward PEG is bang on 1 at the moment. So, while not being as undervalued as the other two stocks mentioned, it feels like I’d be getting a good price based on this penny stock’s prospects.

Naturally, there are still risks here. A growing awareness of just how unfriendly fast fashion is for the environment could impact clothing sales and, by association, profits at Coats. Debt has also been creeping up over the years and could be worth watching.

On balance though, I’d still buy today. 

The post FTSE 250: 3 dirt-cheap growth shares I’d buy for my ISA appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Coats Group and Redrow. 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.

There are many routes to riches in the market. One of the more ‘relaxed’ methods is to buy and sit on stocks paying big dividends. If these stakes can be purchased at a low price, all the better. 

Today, I’ve picked out two lesser-known dividend champions that, in addition to handing out cash to shareholders, still look great value.

Great dividend stock

Online trading provider CMC Markets (LSE: CMCX) has had a superb last year or so with volatile markets bringing a lot of new clients to its services. Net operating income was 63% higher over the 12 months to the end of March to £409.8m. Pre-tax profit rocketed 127% to £224m.  

Despite this, the shares look cheap considering CMC’s consistently high margins and returns on capital. They currently change hands for just 13 times forecast earnings.

Naturally, there will come a time when markets settle. Indeed, CMC has noted that “client trading activity has moderated from prior elevated levels” since the start of its new financial year. This may bring out a few sellers. The shares have climbed almost 400% over the last two years, after all. 

Then again, the company’s rapidly growing stockbroking arm should help make up for this. A forecast 3.8% yield easily covered by profits also makes this a great dividend stock, in my opinion.

Despite the risk of ‘buying at the top’, I’d feel comfortable adding this stock to my own portfolio now.

Ice cool income

Shares in asset manager Polar Capital (LSE: POLR) also look great value considering the mix of potential growth and income on offer.

Right now, these can be bought for 14 times forecast earnings. That looks a good deal based on fundamentals and recent trading. At the start of the month, Polar reported a 49% jump in pre-tax profit to £75.9m over the year to the end of March. A record 71% rise in Assets under Management (AuM) to just under £21bn was also announced.

However, the PEG (price/earnings to growth) comes in at 1. According to the celebrated investor Jim Slater, anything around this level or lower suggests investors are getting a lot of bang for their buck.  

Obviously, there’s no sure thing. The POLR share price could quickly lose its momentum if global markets experience another big wobble and investors take flight. Whether this is the result of a Covid variant really taking hold or some ‘unknown unknown’, we can’t say. CMC might welcome more volatility. Polar Capital, less so.

Then again, the dividends should make up for any short-term pain. The shares currently yield 4.7%. So, like CMC, I’d be a buyer today.

Receive, reinvest, repeat

Cheap dividend stocks can be appealing for older investors who want to generate income. However, we know that feeding these payouts back into the market has the potential to really grow a person’s wealth, whatever their age.

One risk is that I might not stick to this approach. Spending dividends means missing out on the benefits that compounding brings over time. If this were the case, I’d give serious consideration to asking my broker to automatically reinvest on my behalf.

As last year showed, this income is never entirely secure either. The pandemic forced many firms to slash their payouts to shore up cash. As such, spreading my money around a few dividend stocks is something I wouldn’t hesitate to do. 

The post 2 cheap dividend stocks to buy now appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Polar Capital 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.

An opportunity to beat Zoom?

LoopUp Group (LSE:LOOP) also provides a video conferencing platform. There is a vast array of competitors within the market space. However, the firm has differentiated itself by targeting the professional services market (PSM). This includes legal, financial, and client-led business sectors.

Clients in the PSM sector have distinct needs and priorities compared to the general video conferencing market that Zoom focuses on. Most conference calls are with external guests who may have little patience for downloading and learning new software.

LoopUp’s platform is designed specifically to suit the needs of businesses and their external guests. Members can create and join calls by using a phone and an Internet browser – no software download needed.

How does the growth stock work? 

The business model is quite simple. Customers can either subscribe to a monthly package or elect for a pay-as-you-go option. The platform seamlessly integrates with Microsoft Outlook, allowing the host to schedule meetings and create groups. 

This approach may appear simple, but so far, LoopUp has been the only firm to execute it on a large scale successfully. With support for up to 150 people in a single call – and no loss in quality – the company has grown a client list of over 5,000 companies including over 20% of the world’s top-100 private equity firms.

The financials 

Before Covid-19, active users had been increasing by double digits each year like clockwork. Once lockdown came into effect across Europe, daily active users exploded to 75m – a 70% increase in just seven weeks.

In the short term, these figures are obviously non-sustainable. However, it has exposed many new customers to the platform. With some companies intending to retain their work-from-home policies to reduce fixed costs, it’s reasonable to assume that LoopUp will keep many new users.

This assumption is further supported by the firm’s net revenue retention (NRR) rate of 114%. As a reminder, NRR is a measure of how much of the revenue stream is retained after a purchase. A value of 114% means that customers who have previously joined the platform are now spending 14% more than when they first started. An excellent sign of quality and pricing power.

The bottom line — Zoom vs LoopUp

LoopUp is a much smaller business than Zoom. However, it has found a niche segment of the market — expected to be worth $10bn by 2024 — that remains mostly untapped. With a market cap of just over £103m and predicted earnings of £18.4m for 2020, the stock is currently priced at a forecasted price-to-earnings ratio of 5.6. When compared to Zoom’s P/E of over 500, the growth stock looks exceptionally cheap in my eyes.

The post 1 cheap growth stock I think can become as big as Zoom! appeared first on The Motley Fool UK.

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Zaven Boyrazian owns shares in Zoom. The Motley Fool UK has recommended LoopUp Group. 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.

One example of the former could be Associated British Foods (LSE: ABF).

Cheap UK shares

It’s easy to see why investors have been running from the £13bn-cap owner of Primark. Like many, the FTSE 100 company was hit hard by the first lockdown and the dramatic slowdown in retail sales. The second UK lockdown just makes things worse.

When combined with restrictions elsewhere in Europe, 57% of ABF’s total selling space is now temporarily closed. This will likely lose the company an estimated £375m in sales.

Notwithstanding this, ABF would be one of the very few retailers I’d consider buying at the current time. 

For one, the FTSE 100 giant is much more than Primark. The company actually has its fingers in a number of different sector pies, including sugar, agriculture, and ingredients. Now, this diversification won’t guarantee the share price won’t have further to fall, but it does make ABF a more defensive option than your typical listed retailer. It also goes some way to making up for the fact that budget-focused Primark doesn’t sell online.

Another reason to suggest now might be a good time to buy into ABF is that finances still look pretty solid. At the end of its last financial year (mid-September), the company had net cash before lease liabilities of £1.56bn. That’s a far better position compared to others in the market’s top tier.  

Trading at under 15 times earnings, ABF hasn’t been this much of a bargain for a while. Since clothes will always need replacing (and Primark’s value offering should appeal to shoppers during recessionary times), these cheap UK shares look to be anything but a value trap.  

Undervalued

Another stock that I think is too cheap right now is soft drinks company Nichols (LSE: NICL).

Sure, recent trading hasn’t been great. Like others in the space, Nichols has seen revenue and profits tumble over 2020. This has been due to lockdowns and the closure of shops and travel concessions that sell its drinks. Seen in this context, the fall of the Vimto-owner’s share price back to where it was during March’s market crash does make some sense. 

Like ABF however, I think there are reasons to be optimistic. The reinstatement of dividends back in June certainly smacks of confidence. I think it’s unlikely new CEO Andrew Milne would want to reverse that decision when he takes over the reins in January. The small-cap’s balance sheet is also in great shape. Nichols had almost £47m net cash in June.

A forecast price-to-earnings ratio of 16 for FY21 might not scream value but it’s important to put this in perspective. For years, Nichols traded far above this level, and justifiably so. Operating margins and returns on capital employed have long been consistently high.

Admittedly, I’m biased. I’ve held the stock for years. But I see the current price weakness as an opportunity rather than something to ruminate on. News of a falling infection rate and/or vaccine breakthrough could see these cheap shares fizz back to form.

The post Cheap UK shares: this FTSE 100 company looks a bargain to me appeared first on The Motley Fool UK.

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Paul Summers owns shares of Nichols. The Motley Fool UK has recommended Associated British Foods and Nichols. 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.