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2 cheap UK shares I’d buy in an ISA today

Peter Stephens
·3-min read
Man making notes on graphs and charts
Man making notes on graphs and charts

Buying cheap UK shares today could lead to high returns in the long run. The stock market has a long history of delivering recoveries after its bear markets. Therefore, buying FTSE 100 and FTSE 250 shares when they trade at low prices could be a means of maximising your returns.

With that in mind, here are two British shares that appear to offer good value for money. They could catalyse your ISA returns as they deliver on their strategies and enjoy improving operating conditions.

Recovery potential relative to other cheap UK shares

Aviva’s (LSE: AV) 20% stock price fall in 2020 could make it a relatively attractive value investing opportunity compared to other cheap UK shares. The company recently announced changes to its strategy under a refreshed management team that could improve its financial prospects.

For example, the business will focus on a more limited geographical area where it has its greatest competitive advantages. It will also invest in delivering higher service levels to customers, while using greater innovation to reduce costs where possible.

Aviva’s share price fall means it currently trades on a price-to-earnings (P/E) ratio of around 6. This suggests it offers a wide margin of safety relative to other UK shares. It’s expected to post a 9% rise in net profit next year, which could lead to improving investor sentiment.

Clearly, the company faces an uncertain future that could negatively impact on its financial prospects in the near term. The economic outlook remains challenging in many of its key markets. However, it seems to offer good value for money and could be worth buying in an ISA alongside a diverse range of other cheap UK shares.

Growth at a reasonable price

Auto Trader (LSE: AUTO) is another FTSE 100 stock that appears to offer good value for money relative to other cheap UK shares. That’s despite its recent share price recovery that means it’s now in positive territory in the current calendar year.

It’s forecast to post a 40% rise in net profit next year, as the UK’s economic prospects improve. This puts it on a price-to-earnings growth (PEG) ratio of just 0.4, which suggests it offers capital growth potential.

Certainly, the company’s forecasts are subject to change, depending on how factors such as Brexit and coronavirus progress. However, its recent updates have shown it’s adapting to a changing operating environment through innovative customer offerings. They could strengthen its competitive position and allow it to maintain its status as a dominant operator within the online automotive marketplace.

Therefore, now could be the right time to buy a slice of Auto Trader while it trades at an attractive price level. It could deliver impressive returns as part of a diverse ISA portfolio of cheap UK shares.

The post 2 cheap UK shares I’d buy in an ISA today appeared first on The Motley Fool UK.

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Peter Stephens owns shares of Aviva. The Motley Fool UK has recommended Auto Trader. 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.

Motley Fool UK 2020