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Forget gold and Bitcoin. I’d buy these 2 cheap UK shares now in an ISA for the new bull market

Peter Stephens
·3-min read
A stock price graph showing growth over time, possibly in FTSE 100
A stock price graph showing growth over time, possibly in FTSE 100

Cheap UK shares have made strong gains in the past two weeks. The FTSE 100 and FTSE 250 have surged higher as a result of improving investor sentiment in response to positive news regarding a coronavirus vaccine.

Clearly, their performance still lags gold and Bitcoin’s price rises in 2020. However, their low prices and improving long-term prospects could make them more attractive investments than the precious metal and virtual currency.

With that in mind, here are two FTSE 100 shares that appear to offer good value for money even after their strong gains over the past two weeks. I think they could continue to rise in a new bull market.

Improving outlook relative to other cheap UK shares

Tesco (LSE: TSCO) could offer improving performance relative to other cheap UK shares, I feel. The company has recorded a 10% rise in its share price in the past two weeks. Yet it trades on a forward price-to-earnings (P/E) ratio of around 13.5.

This suggests to me that it offers a wide margin of safety, since the retailer is forecast to post double-digit profit growth over the medium term. Key reasons for this could be its position as the UK’s main online grocery retailer. And its capacity to become more efficient through increased innovation could count too.

Tesco’s growing profitability is expected to lead to a rising dividend. The company is forecast to yield 4% next year from a dividend that is covered almost twice by net profit. This suggests that it is affordable, and could rise at a brisk pace over the long run.

While consumer confidence could remain weak over the short run, Tesco appears to offer good value for money relative to other cheap UK shares.

FTSE 100 outperformance at a reasonable price

Persimmon (LSE: PSN) could also outperform other cheap UK shares in the long run, I believe. The company’s P/E ratio of 12.8 may undervalue its prospects. After all, it is forecast to post an 8% rise in net profit next year.

The company’s recent updates have shown that demand for new homes has been robust even with an uncertain economic outlook. Its solid balance sheet could mean that it is in a strong position to survive a period of weaker sales, should factors such as increasing unemployment hit demand for new homes.

Persimmon’s share price has moved 20% higher in the past two weeks. However, it could make further gains within a diverse portfolio of cheap UK shares. Its investment in improving customer satisfaction scores seems to be paying off, with it trending among industry highs during the course of 2020.

Clearly, risks such as a weak economic outlook and changes to government housing measures may limit its near-term prospects. However, its long-term performance relative to the FTSE 100 could be positive, as low interest rates provide support to the UK housing industry.

The post Forget gold and Bitcoin. I’d buy these 2 cheap UK shares now in an ISA for the new bull market appeared first on The Motley Fool UK.

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Peter Stephens owns shares of Persimmon and Tesco. The Motley Fool UK has recommended Tesco. 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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