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3 cheap UK shares I’m backing for 2023

New year '2023' numbers on stacked wooden cubes
Image source: Getty Images

While the FTSE 100 held up well last year, many London Stock Exchange-listed companies saw their share prices fall by double-digits. As a result, there are a lot of cheap UK shares out there right now.

Here, I’m going to highlight three I’m backing for 2023. At their current prices, I reckon these UK shares have a lot of potential.

A China reopening play

Let’s start with Prudential (LSE: PRU). It’s an insurance and savings company focused on the Asian and African markets. At present, the stock has a forward-looking price-to-earnings (P/E) ratio of just 10.

Prudential shares underperformed last year due to the strict Covid restrictions in place in China. These hindered the group’s ability to sell its financial products to consumers.

The outlook is improving though. Recently, China has begun to relax those Covid restrictions. And there is talk that the Hong Kong/Mainland China border – which has been closed for three years – could be reopen later this month. This could lead to much higher revenues and earnings for Prudential.

The major risk here is that China goes into lockdown again. This would most likely send the share price lower. I’m comfortable with this risk though. I’ll be holding on to this stock in 2023.

Takeover speculation

Next up is GBG (LSE: GBG). It’s a leading provider of identity management and fraud prevention solutions. Currently, it has a forward-looking P/E ratio of about 15.

While the valuation here is above the UK market average, I think it’s quite low relative to what’s on offer. This is a company with a solid growth track record (over the last four financial years, revenues have roughly doubled). It’s also a company that’s set to benefit as the world becomes more digital.

It’s worth noting that last year, GBG was the subject of some takeover speculation. No official offer for the company came in the end. However, the fact that the company attracted takeover interest suggests I’m not the only one who sees the stock as cheap right now.

Of course, if tech stocks continue to underperform, GBG’s share price could head lower. However, at current levels, I like the risk/reward. I bought some more shares recently.

An electric vehicle stock

Finally, we have Volex (LSE: VLX). It’s a small UK manufacturing company that specialises in power and connectivity solutions. Currently, the P/E ratio here is about 11.

Volex is growing at an impressive rate right now, thanks to its exposure to the electric vehicle (EV), data centre, and medical equipment markets. For the 26 weeks to 2 October, revenue was up 22%, while underlying operating profit was up 18%.

Looking ahead, analysts expect revenue for the year ending 3 April 2023 to rise 13% year on year. Given this level of growth, I think the valuation here is quite low.

Of course, there’s no guarantee the stock will perform well for me in 2023. For the stock to rise, sentiment towards small-cap shares needs to improve.

I’m optimistic about the stock’s long-term prospects however. If I didn’t already have a substantial position here, I’d be buying more shares today.

The post 3 cheap UK shares I’m backing for 2023 appeared first on The Motley Fool UK.

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Edward Sheldon has positions in Gb Group Plc, Prudential Plc, and Volex Plc. The Motley Fool UK has recommended Prudential Plc. 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 2023