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3 cheap shares I’d buy in February

A mixed ethnicity couple shopping for food in a supermarket
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The FTSE 100 still has plenty of cheap shares to tempt investors despite the strong rally of the last three months.

The following three stocks have caught my eye. I am adding them to my watchlist with a view to buying them as soon as I have money to spare.

These FTSE 100 stocks aren’t expensive

The Barclays (LSE: BARC) share price is on a roll, having jumped by 23.64% over the last three months. Yet over the longer term it is still under siege, having fallen 8.73% measured over one year. Over five years, it is down 11.66%.

Yet Barclays still looks cheap. It has a low price-to-book valuation of just 0.4 (a figure of one is considered fair value). The price-to-earnings valuation is low, too, at just five times earnings (against 15 for fair value).

This is a bumpy time for the banks, as they are exposed to a house price crash and recession. On the plus side, higher interest rates have allowed them to widen net interest margins. That’s the difference between what they pay savers and charge borrowers.

Barclays is currently yielding 3.3%, which is forecast to climb to 4.8%. With cover of 3.7, the dividend has further scope for growth, making this a cheap dividend income stock.

I would also take a chance on BT Group (LSE: BT.A), which currently trades at just 6.4 times earnings. Investors have been scared off by years of underperformance, with the stock down 32.89% over one year and 50.14% over five.

BT has been sunk by falling earnings, high net debt, workforce unrest, and stiff competition from rivals. It must also fund hefty capital expenditure on its fibre infrastructure and mobile networks.

Another nicely valued income stock

Yet if still pays an attractive 6% yield, covered 2.7 times by earnings. BT faces challenges but for a long-term buy-and-hold contrarian investor like me, the risks are worth taking. I will reinvest my dividends to build my stake while I wait for it to recover.

Hindsight is a wonderful thing. I should have bought supermarket chain Sainsbury’s (LSE: SBRY) three months ago, as it’s up 30.63% since then. Yet over one year, the share price is still down 14.3%, and 2.36% over five years. So it is arguably still cheap.

The grocery sector is tough right now, as supermarkets are forced to squeeze prices due to the cost-of-living crisis. All the time, Aldi and Lidl keep munching away at their market share.

Hooking up with Argos didn’t quite deliver the hoped-for turnaround, and now management is placing its best on home delivery service Just Eat. Sainsbury’s showed it still has bite with a record Christmas, and full-year pre-tax profits are now expected to hit the upper end of its forecast range of between £630m and £690m.

That makes its current valuation of 9.9 times look even better. The big attraction is the dividend. Sainsbury’s currently yields 5.2%, covered 1.9 times by earnings. That’s more than any cash account would pay me.

Buying cheap shares is always risky, but I’m investing for the long term and February is looking like a good time to get stuck in.

The post 3 cheap shares I’d buy in February  appeared first on The Motley Fool UK.

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Harvey Jones doesn't hold any of the shares mentioned in this article. The Motley Fool UK has recommended Barclays and Sainsbury's. 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.

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