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5 UK shares I think are still cheap

Christopher Ruane
·3-min read
Smiling diverse couple holding Christmas presents while walking through a winter forest
Smiling diverse couple holding Christmas presents while walking through a winter forest

One of the intriguing things about the stock market is that individual UK shares move in their own way. So, the headlines often discuss the market going up or moving down. But at any time there are usually some shares which look better value than others.

Right now there are five UK shares I think look cheap. I already own some of these names, but I’d be happy to buy them all right now.

High yield at a low price

Tobacco manufacturer Imperial Brands is a popular stock among dividend hunters. That is little wonder considering its strong cash flows and regular payouts. The company did cut its dividend this year, which damaged sentiment. But it still pays out £1.37 a year. Additionally, its progressive dividend policy means that that could increase.

I expect its business to continue strongly and it plans an investor day next month to update the City. Despite Imperial’s solid business performance, these UK shares continue to look cheap to me. With an annual dividend yield over 8%, I would buy them today and hold them indefinitely.

UK shares I think remain undervalued

Many leading shares have regained their pre-pandemic highs. But others are still nursing the wounds of a challenging market. Take defence contractor Babcock, for example. Historically it has been a good dividend payer. Its customer base provides fairly stable revenues with long-term visibility. The company’s interim results last month showed half-year basic earnings per share of 10.5p, even after the effects of the pandemic. At around 300p, I regard Babcock as cheap.

Similarly, shares in leading bank Natwest have recovered some ground, but they still look cheap to me. The bank has not paid dividends this year, so has been able to stockpile more cash. I hope that will be used for future payouts. The bank has strong liquidity and I think it is in a good position to return excess capital to shareholders.

Household names

A couple of household names among UK shares have caught my eye lately. Insurer Legal & General may not be in an exciting business, but that doesn’t mean its shares are unexciting. They are getting close to double their 2020 lows. On that basis they may not look cheap. But their price-to-earnings ratio is still in the single digits. They offer a yield of over 6%. Legal & General continued to pay dividends this year when competitors such as Aviva suspended theirs. That has earned them a place in my portfolio.

Lastly, pharma company GlaxoSmithKline is one of the cheap UK shares I’d buy now. The shares seem to have been unloved during 2020. They remain around a quarter down on where they started the year. But the company is in decent shape. It has a wide portfolio of brands in both the pharma and consumer markets. Its Covid-19 vaccine is not now due for release until the end of 2021. But I don’t think that should affect the company’s valuation. A P/E of 11 and a yield close to 6% for a company of GSK’s quality looks cheap to me.

I think there continues to be lots of value in the UK market — if one knows where to look.

The post 5 UK shares I think are still cheap appeared first on The Motley Fool UK.

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christopherruane owns shares of Babcock International Group, Imperial Brands, and Legal & General Group. The Motley Fool UK has recommended GlaxoSmithKline and Imperial Brands. 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