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Cheap UK shares for 2021? Here are two I’d buy today

Roland Head
·3-min read
The UK national flag in front of Canary Wharf skyscrapers where professionals trade shares for a living.
The UK national flag in front of Canary Wharf skyscrapers where professionals trade shares for a living.

Many UK shares rallied strongly after November’s vaccine news, but I don’t think the stock market recovery is over yet. I think there are still some good, cheap companies out there. Today, I want to look at two names on my buy list at the moment.

How I’d play the housing market

Housebuilder Barratt Developments (LSE: BDEV) is one of my favourite firms in this sector. I rate the management highly and admire the company’s 11-year record of achieving a five-star HBF customer satisfaction rating. In my view, it pays to invest in companies which sell products popular with customers.

Barratt says sales rose by 12% during the second half of 2020. In total, 9,077 homes were sold with an average selling price of £283,000.

This surge in demand is partly due to lockdown restrictions in spring last year which prevented moving. But government policy is probably a factor too. The popular Help to Buy scheme is due to be restricted to first-time buyers from April. The current stamp duty holiday is also due to end on 31 March.

These one-off factors may affect future demand and house prices, but they’re no secret. I believe these risks are already priced into this popular UK share. What’s more, I think there’s a good chance the chancellor may extend one or both of these schemes, given the UK may be in lockdown until March.

Barratt shares currently trade on 13 times 2021 forecast earnings, with an expected yield of 3%. I don’t know what the future holds for the UK housing market, but I do trust Barratt’s experienced management to navigate the situation as well as possible. I think this company should do well when life finally returns to normal.

A UK share in need of normality

Barratt was able to continue fairly normally for much of last year. Pub operators such as Marston’s (LSE: MARS) haven’t. The company’s pubs are all currently closed, as they have been for much of the last nine months.

This is causing problems for Marston’s but, unlike some rivals, I think this group looks financially secure and well-positioned for a recovery.

In October, Marston’s sold its brewing business into a joint venture with Carlsberg for £233m, allowing the group to repay some of its debt. A further payment of £20m is due in October this year.

It’s also expanded its pub estate during the crisis, by taking on the management of 156 pubs from Welsh brewer Brains.

As things stand, the business is obviously losing money. But the latest numbers from the company suggest to me it could survive lockdown until early summer without needing extra cash. I’d hope that we’ll be out of lockdown sooner than that.

When life does go back to normal, I believe pubs should recover fairly quickly. I think that operators whose finances are not too strained could be good investments. Marston’s looks good value to me for a recovery trade — the firm’s shares trade at just 6.5 times 2019 earnings.

Any return to normal would be likely to lift the stock, in my view. I’d buy this UK share for a recovery portfolio.

The post Cheap UK shares for 2021? Here are two I’d buy today appeared first on The Motley Fool UK.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Marstons. 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 2021